diff --git a/src/Fable.Cli/CHANGELOG.md b/src/Fable.Cli/CHANGELOG.md
index 24a14d18ec..a50706b5e1 100644
--- a/src/Fable.Cli/CHANGELOG.md
+++ b/src/Fable.Cli/CHANGELOG.md
@@ -9,6 +9,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ### Fixed
 
+* [Python] Fix function references passed as arguments inside tail-call optimised functions gaining unnecessary default parameters for outer TCO variables they don't reference (fix #3877)
 * [TS] Fix abstract instance methods not emitted in TypeScript when class uses `[<AttachMembers>]` (fixes #3506) (by @MangelMaxime)
 * [JS/TS] Fix `Unchecked.defaultof<'T>` for struct types with fields returning `undefined` instead of zero-initialized values (by @MangelMaxime)
 * [JS/TS] Fixed quotation for union string cases (by @MangelMaxime)
diff --git a/src/Fable.Compiler/CHANGELOG.md b/src/Fable.Compiler/CHANGELOG.md
index 85c6e927bb..fd2d970c6c 100644
--- a/src/Fable.Compiler/CHANGELOG.md
+++ b/src/Fable.Compiler/CHANGELOG.md
@@ -9,6 +9,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ### Fixed
 
+* [Python] Fix function references passed as arguments inside tail-call optimised functions gaining unnecessary default parameters for outer TCO variables they don't reference (fix #3877)
 * [TS] Fix abstract instance methods not emitted in TypeScript when class uses `[<AttachMembers>]` (fixes #3506) (by @MangelMaxime)
 * [JS/TS] Fix `Unchecked.defaultof<'T>` for struct types with fields returning `undefined` instead of zero-initialized values (by @MangelMaxime)
 * [JS/TS] Fixed quotation for union string cases (by @MangelMaxime)
diff --git a/src/Fable.Transforms/Python/Fable2Python.Transforms.fs b/src/Fable.Transforms/Python/Fable2Python.Transforms.fs
index a4faafa166..2ec963ca0c 100644
--- a/src/Fable.Transforms/Python/Fable2Python.Transforms.fs
+++ b/src/Fable.Transforms/Python/Fable2Python.Transforms.fs
@@ -3005,6 +3005,10 @@ let transformFunction
 
                 match name with
                 | "tupled_arg_m" -> None // Remove these arguments (not sure why)
+                // Only capture TCO variables actually referenced in the function body.
+                // This avoids unnecessary default parameters on nested lambdas that don't
+                // use the outer TCO variables. See #3877.
+                | _ when not (isIdentUsed name body) -> None
                 | _ ->
                     let annotation =
                         // Cleanup type annotations to avoid non-repeated generics
diff --git a/tests/Python/TestTailCall.fs b/tests/Python/TestTailCall.fs
index 29894849f2..0311682d15 100644
--- a/tests/Python/TestTailCall.fs
+++ b/tests/Python/TestTailCall.fs
@@ -292,3 +292,17 @@ let ``test Expressiones captured in a closure don't change after tail-call optim
 
     main init view update
     accValue |> equal 10
+
+// See https://github.com/fable-compiler/Fable/issues/3877
+[<Fact>]
+let ``test Passing a function reference in a TCO context does not capture unneeded outer args`` () =
+    let applyFn (f: unit -> int) = f()
+    let alwaysFortyTwo () = 42
+
+    // `alwaysFortyTwo` doesn't reference `_unused`, so it should not capture it
+    // even though `loop` is tail-call optimised with `_unused` in scope.
+    let rec loop (_unused: string) acc n =
+        if n <= 0 then acc
+        else loop _unused (acc + applyFn alwaysFortyTwo) (n - 1)
+
+    loop "ignored" 0 5 |> equal 210