A system and method provide enhanced link loss forwarding in an Ethernet system to determine link degradation and to selectively block and re-establish transport between a near end device and far end device based on a SONET connection between end devices and link status detection using local packets. When an excessive number of errors are detected in an Ethernet port, a device enters a Links Off mode from a Transport mode where Ethernet ports are turned off at both ends of a circuit associated with the errors. A Block Transport mode is then entered where local packets (e.g., OAM packets) are monitored to evaluate link quality (e.g., SONET bit error rate). Transport mode is re-established when acceptable link quality is achieved for a selected period of time.