diff --git a/markdown_code_runner.py b/markdown_code_runner.py
index cac33da..ebcb51e 100644
--- a/markdown_code_runner.py
+++ b/markdown_code_runner.py
@@ -235,6 +235,7 @@ class ProcessingState:
     new_lines: list[str] = field(default_factory=list)
     backtick_options: dict[str, Any] = field(default_factory=dict)
     backtick_standardize: bool = True
+    indent: str = ""  # Indentation prefix of current code block
 
     def process_line(self, line: str, *, verbose: bool = False) -> None:
         """Process a line of the Markdown file."""
@@ -269,6 +270,7 @@ def _process_start_markers(
                 self.output = None
                 self.backtick_options = _extract_backtick_options(line)
                 self.section, _ = marker_name.rsplit(":", 1)  # type: ignore[assignment]
+                self.indent = self._get_indent(line)
 
                 # Standardize backticks if needed
                 if (
@@ -280,6 +282,11 @@ def _process_start_markers(
                 return line
         return None
 
+    @staticmethod
+    def _get_indent(line: str) -> str:
+        """Extract leading whitespace from a line."""
+        return line[: len(line) - len(line.lstrip())]
+
     def _process_output_start(self, line: str) -> None:
         self.section = "output"
         if not self.skip_code_block:
@@ -287,9 +294,11 @@ def _process_output_start(self, line: str) -> None:
                 self.output,
                 list,
             ), f"Output must be a list, not {type(self.output)}, line: {line}"
-            # Trim trailing whitespace from output lines
-            trimmed_output = [line.rstrip() for line in self.output]
-            self.new_lines.extend([line, MARKERS["warning"], *trimmed_output])
+            indent = self._get_indent(line)
+            trimmed_output = [
+                indent + ol.rstrip() if ol.strip() else "" for ol in self.output
+            ]
+            self.new_lines.extend([line, indent + MARKERS["warning"], *trimmed_output])
         else:
             self.original_output.append(line)
 
@@ -301,6 +310,12 @@ def _process_output_end(self) -> None:
         self.original_output = []
         self.output = None  # Reset output after processing end of the output section
 
+    def _strip_indent(self, line: str) -> str:
+        """Strip the code block's indentation prefix from a line."""
+        if self.indent and line.startswith(self.indent):
+            return line[len(self.indent) :]
+        return line
+
     def _process_code(
         self,
         line: str,
@@ -322,8 +337,13 @@ def _process_code(
             self.section = "normal"
             self.code = []
             self.backtick_options = {}
+            self.indent = ""
         else:
-            self.code.append(remove_md_comment(line) if remove_comment else line)
+            # remove_md_comment already strips whitespace; for backticks, strip indent
+            code_line = (
+                remove_md_comment(line) if remove_comment else self._strip_indent(line)
+            )
+            self.code.append(code_line)
 
     def _process_comment_code(self, line: str, *, verbose: bool) -> None:
         _, language = self.section.rsplit(":", 1)
diff --git a/tests/test_main_app.py b/tests/test_main_app.py
index 2aebdf2..81dd9d3 100644
--- a/tests/test_main_app.py
+++ b/tests/test_main_app.py
@@ -881,3 +881,79 @@ def test_trailing_whitespace_trimming() -> None:
     assert output_section_hidden[3] == "Final line"
     assert output_section_hidden[4] == ""  # Line with only spaces becomes empty
     assert output_section_hidden[5] == ""  # Trailing empty line preserved
+
+
+def test_indented_code_blocks() -> None:
+    """Test that indented code blocks (e.g., in list items) work correctly."""
+    # Test case 1: Indented backtick code block (4 spaces, like in a list)
+    input_lines = [
+        "1. List item:",
+        "",
+        "    ```python markdown-code-runner",
+        "    print('hello')",
+        "    ```",
+        "    <!-- OUTPUT:START -->",
+        "    old output",
+        "    <!-- OUTPUT:END -->",
+    ]
+    expected_output = [
+        "1. List item:",
+        "",
+        "    ```python markdown-code-runner",
+        "    print('hello')",
+        "    ```",
+        "    <!-- OUTPUT:START -->",
+        "    " + MARKERS["warning"],
+        "    hello",
+        "",
+        "    <!-- OUTPUT:END -->",
+    ]
+    assert_process(input_lines, expected_output, backtick_standardize=False)
+
+    # Test case 2: Indented code with internal indentation (Python function)
+    input_lines = [
+        "1. Example:",
+        "",
+        "    ```python markdown-code-runner",
+        "    def foo():",
+        "        return 42",
+        "    print(foo())",
+        "    ```",
+        "    <!-- OUTPUT:START -->",
+        "    <!-- OUTPUT:END -->",
+    ]
+    expected_output = [
+        "1. Example:",
+        "",
+        "    ```python markdown-code-runner",
+        "    def foo():",
+        "        return 42",
+        "    print(foo())",
+        "    ```",
+        "    <!-- OUTPUT:START -->",
+        "    " + MARKERS["warning"],
+        "    42",
+        "",
+        "    <!-- OUTPUT:END -->",
+    ]
+    assert_process(input_lines, expected_output, backtick_standardize=False)
+
+    # Test case 3: Indented bash code block
+    input_lines = [
+        "    ```bash markdown-code-runner",
+        '    echo "indented bash"',
+        "    ```",
+        "    <!-- OUTPUT:START -->",
+        "    <!-- OUTPUT:END -->",
+    ]
+    expected_output = [
+        "    ```bash markdown-code-runner",
+        '    echo "indented bash"',
+        "    ```",
+        "    <!-- OUTPUT:START -->",
+        "    " + MARKERS["warning"],
+        "    indented bash",
+        "",
+        "    <!-- OUTPUT:END -->",
+    ]
+    assert_process(input_lines, expected_output, backtick_standardize=False)