diff --git a/src/Streamly/Internal/Data/Stream/IsStream/Top.hs b/src/Streamly/Internal/Data/Stream/IsStream/Top.hs
index 2f624e8250..36624d947d 100644
--- a/src/Streamly/Internal/Data/Stream/IsStream/Top.hs
+++ b/src/Streamly/Internal/Data/Stream/IsStream/Top.hs
@@ -30,7 +30,7 @@ module Streamly.Internal.Data.Stream.IsStream.Top
     , intersectBy
     , intersectBySorted
     , differenceBy
-    , mergeDifferenceBy
+    , differenceBySorted
     , unionBy
     , unionBySorted
 
@@ -633,11 +633,14 @@ differenceBy eq s1 s2 =
 --
 -- Space: O(1)
 --
--- /Unimplemented/
-{-# INLINE mergeDifferenceBy #-}
-mergeDifferenceBy :: -- (IsStream t, Monad m) =>
+-- /Pre-release/
+{-# INLINE differenceBySorted #-}
+differenceBySorted :: (IsStream t, MonadIO m) =>
     (a -> a -> Ordering) -> t m a -> t m a -> t m a
-mergeDifferenceBy _eq _s1 _s2 = undefined
+differenceBySorted eq s1 =
+      IsStream.fromStreamD
+    . StreamD.differenceBySorted eq (IsStream.toStreamD s1)
+    . IsStream.toStreamD
 
 -- | This is essentially an append operation that appends all the extra
 -- occurrences of elements from the second stream that are not already present
diff --git a/src/Streamly/Internal/Data/Stream/StreamD/Nesting.hs b/src/Streamly/Internal/Data/Stream/StreamD/Nesting.hs
index b8ea4771c0..f3a8b2ddc2 100644
--- a/src/Streamly/Internal/Data/Stream/StreamD/Nesting.hs
+++ b/src/Streamly/Internal/Data/Stream/StreamD/Nesting.hs
@@ -144,6 +144,7 @@ module Streamly.Internal.Data.Stream.StreamD.Nesting
     , splitInnerBySuffix
     , intersectBySorted
     , unionBySorted
+    , differenceBySorted
     )
 where
 
@@ -3039,3 +3040,67 @@ unionBySorted cmp (Stream stepa ta) (Stream stepb tb) =
                             )
 
     step _ (_, _, _, _, _, _, _) = return Stop
+
+-------------------------------------------------------------------------------
+-- Difference of sorted streams -----------------------------------------------
+-------------------------------------------------------------------------------
+{-# INLINE_NORMAL differenceBySorted #-}
+differenceBySorted :: (Monad m) =>
+    (a -> a -> Ordering) -> Stream m a -> Stream m a -> Stream m a
+differenceBySorted cmp (Stream stepa ta) (Stream stepb tb) =
+    Stream step (Just ta, Just tb, Nothing, Nothing, Nothing)
+
+    where
+    {-# INLINE_LATE step #-}
+
+    -- one of the values is missing, and the corresponding stream is running
+    step gst (Just sa, sb, Nothing, b, Nothing) = do
+        r <- stepa gst sa
+        return $ case r of
+            Yield a sa' -> Skip (Just sa', sb, Just a, b, Nothing)
+            Skip sa'    -> Skip (Just sa', sb, Nothing, b, Nothing)
+            Stop        -> Skip (Nothing, sb, Nothing, b, Nothing)
+
+    step gst (sa, Just sb, a, Nothing, Nothing) = do
+        r <- stepb gst sb
+        return $ case r of
+            Yield b sb' -> Skip (sa, Just sb', a, Just b, Nothing)
+            Skip sb'    -> Skip (sa, Just sb', a, Nothing, Nothing)
+            Stop        -> Skip (sa, Nothing, a, Nothing, Nothing)
+
+    -- Matching element
+    step gst (Just sa, Just sb, Nothing, _, Just _) = do
+        r1 <- stepa gst sa
+        r2 <- stepb gst sb
+        return $ case r1 of
+            Yield a sa' ->
+                case r2 of
+                    Yield c sb' ->
+                        Skip (Just sa', Just sb', Just a, Just c, Nothing)
+                    Skip sb' ->
+                        Skip (Just sa', Just sb', Just a, Just a, Nothing)
+                    Stop ->
+                        Yield a (Just sa', Just sb, Nothing, Nothing, Just a)
+            Skip sa' ->
+                case r2 of
+                    Yield c sb' ->
+                        Skip (Just sa', Just sb', Just c, Just c, Nothing)
+                    Skip sb' ->
+                        Skip (Just sa', Just sb', Nothing, Nothing, Nothing)
+                    Stop ->
+                        Stop
+            Stop ->
+                Stop
+
+    -- both the values are available
+    step _ (sa, sb, Just a, Just b, Nothing) = do
+        let res = cmp a b
+        return $ case res of
+            GT -> Skip (sa, sb, Just a, Nothing, Nothing)
+            LT -> Yield a (sa, sb, Nothing, Just b, Nothing)
+            EQ -> Skip (sa, sb, Nothing, Just b, Just b)
+
+    -- one of the values is missing, corresponding stream is done
+    step _ (sa, Nothing, Just a, Nothing, Nothing) =
+        return $ Yield a (sa, Nothing, Nothing, Nothing , Nothing)
+    step _ (_, _, _, _, _) = return Stop
diff --git a/test/Streamly/Test/Data/Stream/Top.hs b/test/Streamly/Test/Data/Stream/Top.hs
index fbdd621a43..78684ede35 100644
--- a/test/Streamly/Test/Data/Stream/Top.hs
+++ b/test/Streamly/Test/Data/Stream/Top.hs
@@ -1,7 +1,7 @@
 module Main (main)
     where
 
-import Data.List (intersect, sort, union)
+import Data.List (intersect, sort, union, (\\))
 import Test.QuickCheck
     ( Gen
     , Property
@@ -64,6 +64,26 @@ unionBySorted =
                         (S.fromList ls1)
                 let v2 = sort $ union ls0 ls1
                 assert (v1 == v2)
+
+differenceBySorted :: Property
+differenceBySorted =
+    forAll (listOf (chooseInt (min_value, max_value))) $ \ls0 ->
+        forAll (listOf (chooseInt (min_value, max_value))) $ \ls1 ->
+            monadicIO $ action (sort ls0) (sort ls1)
+
+            where
+
+            action ls0 ls1 = do
+                v1 <-
+                    run
+                    $ S.toList
+                    $ Top.differenceBySorted
+                        compare
+                        (S.fromList ls0)
+                        (S.fromList ls1)
+                let v2 = ls0 \\ ls1
+                assert (v1 == sort v2)
+
 -------------------------------------------------------------------------------
 moduleName :: String
 moduleName = "Data.Stream.Top"
@@ -74,3 +94,4 @@ main = hspec $ do
         -- intersect
         prop "intersectBySorted" Main.intersectBySorted
         prop "unionBySorted" Main.unionBySorted
+        prop "differenceBySorted" Main.differenceBySorted