diff --git a/packages/plugins/eslint-plugin-react-dom/src/rules/no-dangerously-set-innerhtml-with-children.spec.ts b/packages/plugins/eslint-plugin-react-dom/src/rules/no-dangerously-set-innerhtml-with-children.spec.ts
index 5be92153a3..aef1dd127a 100644
--- a/packages/plugins/eslint-plugin-react-dom/src/rules/no-dangerously-set-innerhtml-with-children.spec.ts
+++ b/packages/plugins/eslint-plugin-react-dom/src/rules/no-dangerously-set-innerhtml-with-children.spec.ts
@@ -39,6 +39,30 @@ ruleTester.run(RULE_NAME, rule, {
       code: tsx`<App dangerouslySetInnerHTML={{ __html: "HTML" }}> </App>`,
       errors: [{ messageId: "noDangerouslySetInnerhtmlWithChildren" }],
     },
+    {
+      // https://github.com/Rel1cx/eslint-react/issues/1163
+      code: tsx`
+        function Abc() {
+          return (
+            <>
+              {/* Error on div 1: A DOM component cannot use both 'children' and 'dangerouslySetInnerHTML'. eslint @eslint-react/dom/no-dangerously-set-innerhtml-with-children */}
+              <div dangerouslySetInnerHTML={{ __html: 'Hello World' }}>
+                Goodbye World
+              </div>
+
+              {/* No error on div 2 */}
+              <div dangerouslySetInnerHTML={{ __html: 'Hello World' }}>
+                <p>Goodbye World</p>
+              </div>
+            </>
+          );
+        }
+      `,
+      errors: [
+        { messageId: "noDangerouslySetInnerhtmlWithChildren" },
+        { messageId: "noDangerouslySetInnerhtmlWithChildren" },
+      ],
+    },
   ],
   valid: [
     ...allValid,
@@ -60,6 +84,10 @@ ruleTester.run(RULE_NAME, rule, {
       const { a, b, ...props } = otherProps
       const div = <div {...props} />
     `,
+    tsx`
+      <App dangerouslySetInnerHTML={{ __html: "HTML" }}>
+      </App>
+    `,
     "<App>Children</App>",
     '<App dangerouslySetInnerHTML={{ __html: "HTML" }} />',
     '<App dangerouslySetInnerHTML={{ __html: "HTML" }}>\n</App>',
diff --git a/packages/plugins/eslint-plugin-react-dom/src/rules/no-dangerously-set-innerhtml-with-children.ts b/packages/plugins/eslint-plugin-react-dom/src/rules/no-dangerously-set-innerhtml-with-children.ts
index e4c8212bef..87a2dfe754 100644
--- a/packages/plugins/eslint-plugin-react-dom/src/rules/no-dangerously-set-innerhtml-with-children.ts
+++ b/packages/plugins/eslint-plugin-react-dom/src/rules/no-dangerously-set-innerhtml-with-children.ts
@@ -1,10 +1,9 @@
 import type { RuleContext, RuleFeature } from "@eslint-react/kit";
-import type { TSESTree } from "@typescript-eslint/types";
 import type { RuleListener } from "@typescript-eslint/utils/ts-eslint";
 import type { CamelCase } from "string-ts";
-import * as AST from "@eslint-react/ast";
 import * as ER from "@eslint-react/core";
 
+import { AST_NODE_TYPES, type TSESTree } from "@typescript-eslint/types";
 import { createRule } from "../utils";
 
 export const RULE_NAME = "no-dangerously-set-innerhtml-with-children";
@@ -40,7 +39,8 @@ export function create(context: RuleContext<MessageID, []>): RuleListener {
     JSXElement(node) {
       const attributes = node.openingElement.attributes;
       const initialScope = context.sourceCode.getScope(node);
-      const hasChildren = hasChildrenWithin(node) || ER.hasAttribute(context, "children", attributes, initialScope);
+      const hasChildren = node.children.some(isSignificantChildren)
+        || ER.hasAttribute(context, "children", attributes, initialScope);
       if (hasChildren && ER.hasAttribute(context, dangerouslySetInnerHTML, attributes, initialScope)) {
         context.report({
           messageId: "noDangerouslySetInnerhtmlWithChildren",
@@ -51,8 +51,26 @@ export function create(context: RuleContext<MessageID, []>): RuleListener {
   };
 }
 
-function hasChildrenWithin(node: TSESTree.JSXElement): boolean {
-  return node.children.length > 0
-    && node.children[0] != null
-    && !AST.isLineBreak(node.children[0]);
+/**
+ * Check if a Literal or JSXText node is whitespace
+ * @param node The AST node to check
+ * @returns boolean `true` if the node is whitespace
+ */
+function isWhiteSpace(node: TSESTree.JSXText | TSESTree.Literal) {
+  return typeof node.value === "string" && node.raw.trim() === "";
+}
+
+/**
+ * Check if a Literal or JSXText node is padding spaces
+ * @param node The AST node to check
+ * @returns boolean
+ */
+function isPaddingSpaces(node: TSESTree.Node) {
+  return ER.isJsxText(node)
+    && isWhiteSpace(node)
+    && node.raw.includes("\n");
+}
+
+function isSignificantChildren(node: TSESTree.JSXElement["children"][number]) {
+  return node.type !== AST_NODE_TYPES.JSXText || !isPaddingSpaces(node);
 }
diff --git a/pnpm-lock.yaml b/pnpm-lock.yaml
index fd20058a9d..fa52fe1da5 100644
--- a/pnpm-lock.yaml
+++ b/pnpm-lock.yaml
@@ -4151,6 +4151,7 @@ packages:
 
   '@zod/mini@4.0.0-beta.20250505T195954':
     resolution: {integrity: sha512-ioybPtU4w4TqwHvJv0gkAiYNaBkZ/BaGHBpK7viCIRSE8BiiZucVZ8vS0YE04Qy1R120nAnFy1d+tD9ByMO0yw==}
+    deprecated: Package no longer supported. Contact Support at https://www.npmjs.com/support for more info.
 
   acorn-jsx@5.3.2:
     resolution: {integrity: sha512-rq9s+JNhf0IChjtDXxllJ7g41oZk5SlXtp0LHwyA5cejwn7vKmKp4pPri6YEePv2PU65sAsegbXtIinmDFDXgQ==}
@@ -6923,6 +6924,7 @@ packages:
   source-map@0.8.0-beta.0:
     resolution: {integrity: sha512-2ymg6oRBpebeZi9UUNsgQ89bhx01TcTkmNTGnNO88imTmbSgy4nfujrgVEFKWpMTEGA11EDkTt7mqObTPdigIA==}
     engines: {node: '>= 8'}
+    deprecated: The work that was done in this beta branch won't be included in future versions
 
   space-separated-tokens@2.0.2:
     resolution: {integrity: sha512-PEGlAwrG8yXGXRjW32fGbg66JAlOAwbObuqVoJpv/mRgoWDQfgH1wDPvtzWyUSNAXBGSk8h755YDbbcEy3SH2Q==}