diff --git a/http/http/src/main/java/io/helidon/http/PathMatchers.java b/http/http/src/main/java/io/helidon/http/PathMatchers.java
index 9aa0eff66d4..bbaaff18a86 100644
--- a/http/http/src/main/java/io/helidon/http/PathMatchers.java
+++ b/http/http/src/main/java/io/helidon/http/PathMatchers.java
@@ -24,6 +24,7 @@
 import java.util.regex.Pattern;
 
 import io.helidon.common.parameters.Parameters;
+import io.helidon.common.uri.UriEncoding;
 import io.helidon.common.uri.UriPath;
 
 /**
@@ -276,8 +277,9 @@ static final class ExactPathMatcher implements PathMatcher {
         private final String pathWithTrailingSlash;
 
         ExactPathMatcher(String path) {
-            this.path = path;
-            this.pathWithTrailingSlash = path + "/";
+            // We work with decoded URIs
+            this.path = UriEncoding.decodeUri(path);
+            this.pathWithTrailingSlash = this.path + "/";
         }
 
         @Override
diff --git a/microprofile/server/src/test/java/io/helidon/microprofile/server/JaxRsApplicationPathTest.java b/microprofile/server/src/test/java/io/helidon/microprofile/server/JaxRsApplicationPathTest.java
new file mode 100644
index 00000000000..fab767fc9c0
--- /dev/null
+++ b/microprofile/server/src/test/java/io/helidon/microprofile/server/JaxRsApplicationPathTest.java
@@ -0,0 +1,89 @@
+/*
+ * Copyright (c) 2023 Oracle and/or its affiliates.
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *     http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+package io.helidon.microprofile.server;
+
+import static org.hamcrest.MatcherAssert.assertThat;
+import static org.hamcrest.Matchers.is;
+
+import java.util.HashSet;
+import java.util.Set;
+
+import jakarta.ws.rs.ApplicationPath;
+import jakarta.ws.rs.GET;
+import jakarta.ws.rs.Path;
+import jakarta.ws.rs.client.Client;
+import jakarta.ws.rs.client.ClientBuilder;
+import jakarta.ws.rs.core.Application;
+import org.junit.jupiter.api.AfterAll;
+import org.junit.jupiter.api.BeforeAll;
+import org.junit.jupiter.api.Test;
+
+class JaxRsApplicationPathTest {
+
+    private static Server server;
+    private static Client client;
+    private static int port;
+
+    @BeforeAll
+    static void beforeAll() {
+        server = Server.builder().addApplication(MyApplication.class).build();
+        server.start();
+        port = server.port();
+        client = ClientBuilder.newClient();
+    }
+
+    @AfterAll
+    static void afterAll() {
+        server.stop();
+        client.close();
+    }
+
+    @Test
+    void okTest() {
+        String getResponse = client.target("http://localhost:" + port)
+                .path("/ApplicationPath!/Resource").request().get(String.class);
+        assertThat(getResponse, is("ok"));
+    }
+
+    @Test
+    void nokTest() {
+        int status = client.target("http://localhost:" + port)
+                .path("/Resource").request().get().getStatus();
+        assertThat(status, is(404));
+    }
+
+    @ApplicationPath("/ApplicationPath%21")
+    static class MyApplication extends Application {
+
+        @Override
+        public java.util.Set<java.lang.Class<?>> getClasses() {
+            Set<Class<?>> resources = new HashSet<Class<?>>();
+            resources.add(TestResource.class);
+            return resources;
+        }
+    }
+
+    @Path("/Resource")
+    public static class TestResource {
+
+        @GET
+        public String param() {
+          return "ok";
+        }
+
+    }
+}