diff --git a/cmd/auth-handler.go b/cmd/auth-handler.go
index 46dd67322..3efaa545d 100644
--- a/cmd/auth-handler.go
+++ b/cmd/auth-handler.go
@@ -211,8 +211,9 @@ func getClaimsFromToken(r *http.Request) (map[string]interface{}, error) {
 		// If OPA is not set, session token should
 		// have a policy and its mandatory, reject
 		// requests without policy claim.
-		_, pok := claims.Lookup(iamPolicyClaimName())
-		if !pok {
+		_, pokOpenID := claims.Lookup(iamPolicyClaimNameOpenID())
+		_, pokSA := claims.Lookup(iamPolicyClaimNameSA())
+		if !pokOpenID && !pokSA {
 			return nil, errAuthentication
 		}
 
diff --git a/cmd/iam.go b/cmd/iam.go
index 7212587a4..00a3a6f11 100644
--- a/cmd/iam.go
+++ b/cmd/iam.go
@@ -798,17 +798,18 @@ func (sys *IAMSys) NewServiceAccount(ctx context.Context, parentUser, sessionPol
 	}
 
 	if len(sessionPolicy) > 16*1024 {
-		return auth.Credentials{}, fmt.Errorf("Session policy should not exceed 16*1024 characters")
+		return auth.Credentials{}, fmt.Errorf("Session policy should not exceed 16 KiB characters")
 	}
 
-	policy, err := iampolicy.ParseConfig(bytes.NewReader([]byte(sessionPolicy)))
-	if err != nil {
-		return auth.Credentials{}, err
-	}
-
-	// Version in policy must not be empty
-	if policy.Version == "" {
-		return auth.Credentials{}, fmt.Errorf("Invalid session policy version")
+	if len(sessionPolicy) > 0 {
+		policy, err := iampolicy.ParseConfig(bytes.NewReader([]byte(sessionPolicy)))
+		if err != nil {
+			return auth.Credentials{}, err
+		}
+		// Version in policy must not be empty
+		if policy.Version == "" {
+			return auth.Credentials{}, fmt.Errorf("Invalid session policy version")
+		}
 	}
 
 	sys.Lock()
@@ -836,9 +837,14 @@ func (sys *IAMSys) NewServiceAccount(ctx context.Context, parentUser, sessionPol
 	}
 
 	m := make(map[string]interface{})
-	m[iampolicy.SessionPolicyName] = base64.StdEncoding.EncodeToString([]byte(sessionPolicy))
 	m[parentClaim] = parentUser
-	m[iamPolicyClaimName()] = "embedded-policy"
+
+	if len(sessionPolicy) > 0 {
+		m[iampolicy.SessionPolicyName] = base64.StdEncoding.EncodeToString([]byte(sessionPolicy))
+		m[iamPolicyClaimNameSA()] = "embedded-policy"
+	} else {
+		m[iamPolicyClaimNameSA()] = "inherited-policy"
+	}
 
 	secret := globalActiveCred.SecretKey
 	cred, err := auth.GetNewCredentialsWithMetadata(m, secret)
@@ -1473,6 +1479,11 @@ func (sys *IAMSys) IsAllowedServiceAccount(args iampolicy.Args, parent string) b
 		if parentInClaim != parent {
 			return false
 		}
+	} else {
+		// This is needed so a malicious user cannot
+		// use a leaked session key of another user
+		// to widen its privileges.
+		return false
 	}
 
 	// Check if the parent is allowed to perform this action, reject if not
@@ -1508,12 +1519,27 @@ func (sys *IAMSys) IsAllowedServiceAccount(args iampolicy.Args, parent string) b
 			availablePolicies[i].Statements...)
 	}
 
-	serviceAcc := args.AccountName
-	args.AccountName = parent
-	if !combinedPolicy.IsAllowed(args) {
+	parentArgs := args
+	parentArgs.AccountName = parent
+	if !combinedPolicy.IsAllowed(parentArgs) {
 		return false
 	}
-	args.AccountName = serviceAcc
+
+	saPolicyClaim, ok := args.Claims[iamPolicyClaimNameSA()]
+	if ok {
+		saPolicyClaimStr, ok := saPolicyClaim.(string)
+		if !ok {
+			// Sub policy if set, should be a string reject
+			// malformed/malicious requests.
+			return false
+		}
+
+		if saPolicyClaimStr == "inherited-policy" {
+			// Immediately returns true since at this stage, since
+			// parent user is allowed to do this action.
+			return true
+		}
+	}
 
 	// Now check if we have a sessionPolicy.
 	spolicy, ok := args.Claims[iampolicy.SessionPolicyName]
@@ -1605,7 +1631,7 @@ func (sys *IAMSys) IsAllowedSTS(args iampolicy.Args) bool {
 		return combinedPolicy.IsAllowed(args)
 	}
 
-	pnameSlice, ok := args.GetPolicies(iamPolicyClaimName())
+	pnameSlice, ok := args.GetPolicies(iamPolicyClaimNameOpenID())
 	if !ok {
 		// When claims are set, it should have a policy claim field.
 		return false
diff --git a/cmd/sts-handlers.go b/cmd/sts-handlers.go
index 0cea13b05..d3f761d60 100644
--- a/cmd/sts-handlers.go
+++ b/cmd/sts-handlers.go
@@ -215,7 +215,7 @@ func (sts *stsAPIHandlers) AssumeRole(w http.ResponseWriter, r *http.Request) {
 	// This policy is the policy associated with the user
 	// requesting for temporary credentials. The temporary
 	// credentials will inherit the same policy requirements.
-	m[iamPolicyClaimName()] = policyName
+	m[iamPolicyClaimNameOpenID()] = policyName
 
 	if len(sessionPolicyStr) > 0 {
 		m[iampolicy.SessionPolicyName] = base64.StdEncoding.EncodeToString([]byte(sessionPolicyStr))
@@ -351,7 +351,7 @@ func (sts *stsAPIHandlers) AssumeRoleWithJWT(w http.ResponseWriter, r *http.Requ
 	// be set and configured on your identity provider as part of
 	// JWT custom claims.
 	var policyName string
-	if v, ok := m[iamPolicyClaimName()]; ok {
+	if v, ok := m[iamPolicyClaimNameOpenID()]; ok {
 		policyName, _ = v.(string)
 	}
 
diff --git a/cmd/utils.go b/cmd/utils.go
index bdf886798..8de0c6625 100644
--- a/cmd/utils.go
+++ b/cmd/utils.go
@@ -620,10 +620,14 @@ func getMinioMode() string {
 	return mode
 }
 
-func iamPolicyClaimName() string {
+func iamPolicyClaimNameOpenID() string {
 	return globalOpenIDConfig.ClaimPrefix + globalOpenIDConfig.ClaimName
 }
 
+func iamPolicyClaimNameSA() string {
+	return "sa-policy"
+}
+
 func isWORMEnabled(bucket string) bool {
 	if isMinioMetaBucketName(bucket) {
 		return false