diff --git a/pkg/tsdb/loki/api.go b/pkg/tsdb/loki/api.go
index 553cc9bdf4dd..15743e5efebe 100644
--- a/pkg/tsdb/loki/api.go
+++ b/pkg/tsdb/loki/api.go
@@ -24,6 +24,11 @@ type LokiAPI struct {
 	headers map[string]string
 }
 
+type RawLokiResponse struct {
+	Body     []byte
+	Encoding string
+}
+
 func newLokiAPI(client *http.Client, url string, log log.Logger, headers map[string]string) *LokiAPI {
 	return &LokiAPI{client: client, url: url, log: log, headers: headers}
 }
@@ -204,15 +209,15 @@ func makeRawRequest(ctx context.Context, lokiDsUrl string, resourcePath string,
 	return req, nil
 }
 
-func (api *LokiAPI) RawQuery(ctx context.Context, resourcePath string) ([]byte, error) {
+func (api *LokiAPI) RawQuery(ctx context.Context, resourcePath string) (RawLokiResponse, error) {
 	req, err := makeRawRequest(ctx, api.url, resourcePath, api.headers)
 	if err != nil {
-		return nil, err
+		return RawLokiResponse{}, err
 	}
 
 	resp, err := api.client.Do(req)
 	if err != nil {
-		return nil, err
+		return RawLokiResponse{}, err
 	}
 
 	defer func() {
@@ -222,8 +227,18 @@ func (api *LokiAPI) RawQuery(ctx context.Context, resourcePath string) ([]byte,
 	}()
 
 	if resp.StatusCode/100 != 2 {
-		return nil, makeLokiError(resp.Body)
+		return RawLokiResponse{}, makeLokiError(resp.Body)
+	}
+
+	body, err := io.ReadAll(resp.Body)
+	if err != nil {
+		return RawLokiResponse{}, err
+	}
+
+	encodedBytes := RawLokiResponse{
+		Body:     body,
+		Encoding: resp.Header.Get("Content-Encoding"),
 	}
 
-	return io.ReadAll(resp.Body)
+	return encodedBytes, nil
 }
diff --git a/pkg/tsdb/loki/api_mock.go b/pkg/tsdb/loki/api_mock.go
index ae54fb852932..425c0a885a03 100644
--- a/pkg/tsdb/loki/api_mock.go
+++ b/pkg/tsdb/loki/api_mock.go
@@ -32,6 +32,29 @@ func (mockedRT *mockedRoundTripper) RoundTrip(req *http.Request) (*http.Response
 	}, nil
 }
 
+type mockedCompressedRoundTripper struct {
+	statusCode      int
+	responseBytes   []byte
+	contentType     string
+	requestCallback mockRequestCallback
+}
+
+func (mockedRT *mockedCompressedRoundTripper) RoundTrip(req *http.Request) (*http.Response, error) {
+	requestCallback := mockedRT.requestCallback
+	if requestCallback != nil {
+		requestCallback(req)
+	}
+
+	header := http.Header{}
+	header.Add("Content-Type", mockedRT.contentType)
+	header.Add("Content-Encoding", "gzip")
+	return &http.Response{
+		StatusCode: mockedRT.statusCode,
+		Header:     header,
+		Body:       io.NopCloser(bytes.NewReader(mockedRT.responseBytes)),
+	}, nil
+}
+
 func makeMockedAPI(statusCode int, contentType string, responseBytes []byte, requestCallback mockRequestCallback) *LokiAPI {
 	return makeMockedAPIWithUrl("http://localhost:9999", statusCode, contentType, responseBytes, requestCallback)
 }
@@ -43,3 +66,11 @@ func makeMockedAPIWithUrl(url string, statusCode int, contentType string, respon
 
 	return newLokiAPI(&client, url, log.New("test"), nil)
 }
+
+func makeCompressedMockedAPIWithUrl(url string, statusCode int, contentType string, responseBytes []byte, requestCallback mockRequestCallback) *LokiAPI {
+	client := http.Client{
+		Transport: &mockedCompressedRoundTripper{statusCode: statusCode, contentType: contentType, responseBytes: responseBytes, requestCallback: requestCallback},
+	}
+
+	return newLokiAPI(&client, url, log.New("test"), nil)
+}
diff --git a/pkg/tsdb/loki/api_test.go b/pkg/tsdb/loki/api_test.go
index 4db38dd14f38..2b64e383bf4c 100644
--- a/pkg/tsdb/loki/api_test.go
+++ b/pkg/tsdb/loki/api_test.go
@@ -150,3 +150,18 @@ func TestApiUrlHandling(t *testing.T) {
 		})
 	}
 }
+
+func TestApiReturnValues(t *testing.T) {
+	t.Run("Loki should return the right encoding", func(t *testing.T) {
+		called := false
+		api := makeCompressedMockedAPIWithUrl("http://localhost:3100", 200, "application/json", []byte("foo"), func(req *http.Request) {
+			called = true
+		})
+
+		encodedBytes, err := api.RawQuery(context.Background(), "/loki/api/v1/labels?start=1&end=2")
+		require.NoError(t, err)
+		require.True(t, called)
+		require.Equal(t, "gzip", encodedBytes.Encoding)
+		require.Equal(t, []byte("foo"), encodedBytes.Body)
+	})
+}
diff --git a/pkg/tsdb/loki/loki.go b/pkg/tsdb/loki/loki.go
index 49c1f46b9094..12a2d8561a7a 100644
--- a/pkg/tsdb/loki/loki.go
+++ b/pkg/tsdb/loki/loki.go
@@ -119,7 +119,7 @@ func (s *Service) CallResource(ctx context.Context, req *backend.CallResourceReq
 	return callResource(ctx, req, sender, dsInfo, logger.FromContext(ctx))
 }
 
-func getAuthHeadersForCallResource(headers map[string][]string) map[string]string {
+func getHeadersForCallResource(headers map[string][]string) map[string]string {
 	data := make(map[string]string)
 
 	if auth := arrayHeaderFirstValue(headers["Authorization"]); auth != "" {
@@ -134,6 +134,10 @@ func getAuthHeadersForCallResource(headers map[string][]string) map[string]strin
 		data["X-ID-Token"] = idToken
 	}
 
+	if encType := arrayHeaderFirstValue(headers["Accept-Encoding"]); encType != "" {
+		data["Accept-Encoding"] = encType
+	}
+
 	return data
 }
 
@@ -151,19 +155,23 @@ func callResource(ctx context.Context, req *backend.CallResourceRequest, sender
 	}
 	lokiURL := fmt.Sprintf("/loki/api/v1/%s", url)
 
-	api := newLokiAPI(dsInfo.HTTPClient, dsInfo.URL, plog, getAuthHeadersForCallResource(req.Headers))
-	bytes, err := api.RawQuery(ctx, lokiURL)
+	api := newLokiAPI(dsInfo.HTTPClient, dsInfo.URL, plog, getHeadersForCallResource(req.Headers))
+	encodedBytes, err := api.RawQuery(ctx, lokiURL)
 
 	if err != nil {
 		return err
 	}
 
+	respHeaders := map[string][]string{
+		"content-type": {"application/json"},
+	}
+	if encodedBytes.Encoding != "" {
+		respHeaders["content-encoding"] = []string{encodedBytes.Encoding}
+	}
 	return sender.Send(&backend.CallResourceResponse{
-		Status: http.StatusOK,
-		Headers: map[string][]string{
-			"content-type": {"application/json"},
-		},
-		Body: bytes,
+		Status:  http.StatusOK,
+		Headers: respHeaders,
+		Body:    encodedBytes.Body,
 	})
 }