diff --git a/src/config/api-server/tests/test_crud_basic.py b/src/config/api-server/tests/test_crud_basic.py
index 4ca499ea932..9c38c1eb18b 100644
--- a/src/config/api-server/tests/test_crud_basic.py
+++ b/src/config/api-server/tests/test_crud_basic.py
@@ -31,6 +31,7 @@
 from vnc_api.common import exceptions as vnc_exceptions
 import vnc_api.gen.vnc_api_test_gen
 from vnc_api.gen.resource_test import *
+import cfgm_common
 
 sys.path.append('../common/tests')
 from test_utils import *
@@ -822,6 +823,40 @@ def test_put_on_wrong_type(self):
         rb_obj = self._vnc_lib.virtual_network_read(id=vn_obj.uuid)
         self.assertThat(rb_obj.display_name, Equals('foobar'))
 
+    def test_floatingip_as_instanceip(self):
+        ipam_fixt = self.useFixture(NetworkIpamTestFixtureGen(self._vnc_lib))
+
+        project_fixt = self.useFixture(ProjectTestFixtureGen(self._vnc_lib, 'default-project'))
+
+        subnet_vnc = IpamSubnetType(subnet=SubnetType('1.1.1.0', 24))
+        vnsn_data = VnSubnetsType([subnet_vnc])
+        logger.info("Creating a virtual network")
+        logger.info("Creating subnet 1.1.1.0/24")
+        vn_fixt = self.useFixture(VirtualNetworkTestFixtureGen(self._vnc_lib,
+                  network_ipam_ref_infos=[(ipam_fixt.getObj(), vnsn_data)]))
+        vn_fixt.getObj().set_router_external(True)
+        self._vnc_lib.virtual_network_update(vn_fixt.getObj())
+
+        logger.info("Fetching floating-ip-pool")
+        fip_pool_fixt = self.useFixture(
+            FloatingIpPoolTestFixtureGen(self._vnc_lib, 'floating-ip-pool',
+                                         parent_fixt=vn_fixt))
+
+        logger.info("Creating auto-alloc floating-ip")
+        fip_fixt = self.useFixture(
+            FloatingIpTestFixtureGen(
+                self._vnc_lib, 'fip1', parent_fixt=fip_pool_fixt,
+                project_refs=[project_fixt.getObj()]))
+        ip_allocated = fip_fixt.getObj().floating_ip_address
+
+        logger.info("Creating auto-alloc instance-ip, expecting an error")
+        with self.assertRaises(cfgm_common.exceptions.PermissionDenied):
+            iip_fixt = self.useFixture(
+                InstanceIpTestFixtureGen(
+                    self._vnc_lib, 'iip1', auto_prop_val=False,
+                    instance_ip_address=ip_allocated,
+                    virtual_network_refs=[vn_fixt.getObj()]))
+    # end test_floatingip_as_instanceip
 # end class TestVncCfgApiServer
 
 class TestLocalAuth(test_case.ApiServerTestCase):
diff --git a/src/config/api-server/vnc_cfg_types.py b/src/config/api-server/vnc_cfg_types.py
index e9d40946694..31fc89cd94f 100644
--- a/src/config/api-server/vnc_cfg_types.py
+++ b/src/config/api-server/vnc_cfg_types.py
@@ -168,6 +168,17 @@ def _get_subnet_name(cls, vn_dict, subnet_uuid):
                                   subnet_dict['ip_prefix_len'])
                     return subnet_name
 
+    @classmethod
+    def _is_gateway_ip(cls, vn_dict, ip_addr):
+        ipam_refs = vn_dict.get('network_ipam_refs', [])
+        for ipam in ipam_refs:
+            ipam_subnets = ipam['attr'].get('ipam_subnets', [])
+            for subnet in ipam_subnets:
+                if subnet['default_gateway'] == ip_addr:
+                    return True
+
+        return False
+
     @classmethod
     def http_post_collection(cls, tenant_name, obj_dict, db_conn):
         vn_fq_name = obj_dict['virtual_network_refs'][0]['to']
@@ -190,6 +201,15 @@ def http_post_collection(cls, tenant_name, obj_dict, db_conn):
         sub = cls._get_subnet_name(vn_dict, subnet_uuid) if subnet_uuid else None
         if subnet_uuid and not sub:
             return (False, (404, "Subnet id " + subnet_uuid + " not found"))
+
+        # If its an external network, check whether floating IP equivalent to
+        # requested fixed-IP is already reserved.
+        router_external = vn_dict.get('router_external', None)
+        if req_ip and router_external and \
+           not cls._is_gateway_ip(vn_dict, req_ip) and \
+           cls.addr_mgmt.is_ip_allocated(req_ip, vn_fq_name):
+            return (False, (403, 'Ip address already in use'))
+
         try:
             ip_addr = cls.addr_mgmt.ip_alloc_req(
                 vn_fq_name, sub=sub, asked_ip_addr=req_ip,
diff --git a/src/config/common/tests/test_utils.py b/src/config/common/tests/test_utils.py
index f917509d83d..fb578ee50d4 100644
--- a/src/config/common/tests/test_utils.py
+++ b/src/config/common/tests/test_utils.py
@@ -813,6 +813,10 @@ def create(self, path, value='', *args, **kwargs):
         self._values[path] = value
     # end create
 
+    def get(self, path):
+        return self._values[path]
+    # end get
+
     def delete(self, path, recursive=False):
         if not recursive:
             try: