diff --git a/package.json b/package.json
index a216ede..7a8efed 100644
--- a/package.json
+++ b/package.json
@@ -1,6 +1,6 @@
 {
   "name": "@tp/tp-dropdown",
-  "version": "1.5.0",
+  "version": "2.0.0",
   "description": "",
   "main": "tp-dropdown.js",
   "scripts": {
diff --git a/tp-dropdown.js b/tp-dropdown.js
index 9cc3dce..b0573eb 100644
--- a/tp-dropdown.js
+++ b/tp-dropdown.js
@@ -28,7 +28,7 @@ const BaseElement = mixins.reduce((baseClass, mixin) => {
   return mixin(baseClass);
 }, LitElement);
 
-class TpDropdown extends BaseElement {
+export class TpDropdown extends BaseElement {
   static get styles() {
     return [
       css`
@@ -152,10 +152,9 @@ class TpDropdown extends BaseElement {
           color: var(--tp-dropdown-hovered-item-color, inherit);
         }
 
-        div[role="option"]:focus {
-          background: var(--tp-dropdown-focused-item-bg, #EEEEEE);
-          color: var(--tp-dropdown-focused-item-color, inherit);
-          outline: none;
+        div[role="option"][highlighted] {
+          background: var(--tp-dropdown-highlighted-item-bg, #EEEEEE);
+          color: var(--tp-dropdown-highlighted-item-color, inherit);
         }
 
         div[role="option"][selected] {
@@ -251,15 +250,15 @@ class TpDropdown extends BaseElement {
         </div>
         <div id="popup" ?open="${isOpen}" part="popup">
           ${filterable ? html`
-            <tp-input part="filter" exportparts="wrap:filterWrap" id="filter" .value=${this._filterTerm || ''} @input=${e => this._filterTerm = e.target.value} .inert=${!isOpen} ?hidden=${!(filterable || extensible)}>
+            <tp-input part="filter" exportparts="wrap:filterWrap" id="filter" .value=${this._filterTerm || ''} @input=${e => this._onFilterInput(e)} .inert=${!isOpen} ?hidden=${!(filterable || extensible)}>
               <input type="text" placeholder=${filterPlaceholder}>
               <tp-icon id="filterIcon" .icon=${extensible ? TpDropdown.addIcon : TpDropdown.filterIcon} slot="suffix"></tp-icon>
             </tp-input>
           ` : null}
           <div id="itemList" part="list">
             ${isOpen ? html`
-              ${items.map(item => this._filter(item) ? html`
-                <div part="item" role="option" .value=${item.value} tabindex=${isOpen ? '0' : '-1'}>${item.label}</div>
+              ${items.map((item, index) => this._filter(item) ? html`
+                <div part="item" role="option" .value=${item.value} ?highlighted=${this._getVisibleIndex(index) === this._highlightedIndex} tabindex="-1">${item.label}</div>
               ` : null)}
             ` : null}
           </div>
@@ -298,7 +297,8 @@ class TpDropdown extends BaseElement {
       * back again.
       */
       _memorizedValue: { type: String },
-      _filterTerm: { type: String }
+      _filterTerm: { type: String },
+      _highlightedIndex: { type: Number }
     };
   }
 
@@ -324,6 +324,7 @@ class TpDropdown extends BaseElement {
     super();
     this.items = [];
     this._onDocClickHandler = () => this.close();
+    this._highlightedIndex = -1;
   }
 
   disconnectedCallback() {
@@ -440,22 +441,10 @@ class TpDropdown extends BaseElement {
     }
 
     this.invalid = false;
-
-    setTimeout(() => {
-      var ariaSel = this.shadowRoot.querySelector('div[aria-selected]');
-      var item = this.shadowRoot.querySelector('div[selected]');
-      if (ariaSel) {
-        ariaSel.removeAttribute('aria-selected');
-      }
-      if (item) {
-        item.setAttribute('aria-selected', true);
-      }
-    }, 0);
   }
 
   _checkValue(newValue, oldValue) {
     if (newValue === null || newValue === undefined) {
-      this.$.itemList.selection = null;
       this.label = '';
     }
   }
@@ -498,7 +487,16 @@ class TpDropdown extends BaseElement {
     this._setListPosition();
 
     this.isOpen = true;
-    this.$.selItem.focus();
+    
+    // Initialize highlighting and focus
+    setTimeout(() => {
+      this._setListHighlight();
+      if (this.filterable) {
+        this.$.filter.focus();
+      } else {
+        this.$.selItem.focus();
+      }
+    }, 0);
   }
 
   _filterClicked(e) {
@@ -535,6 +533,7 @@ class TpDropdown extends BaseElement {
     }
 
     this.isOpen = false;
+    this._highlightedIndex = -1;
     window.removeEventListener('resize', this._boundSetListPosition);
     document.removeEventListener('scroll', this._boundSetListPosition);
     document.removeEventListener('click', this._onDocClickHandler, true);
@@ -659,11 +658,34 @@ class TpDropdown extends BaseElement {
     return new RegExp('.*' + this._filterTerm.toLowerCase() + '.*').test(item.label.toLowerCase());
   }
 
+  _getVisibleIndex(itemIndex) {
+    // Calculate the visible index for filtered items
+    let visibleIndex = 0;
+    for (let i = 0; i < itemIndex; i++) {
+      if (this._filter(this.items[i])) {
+        visibleIndex++;
+      }
+    }
+    return this._filter(this.items[itemIndex]) ? visibleIndex : -1;
+  }
+
+  _getVisibleItems() {
+    return this.items.filter(item => this._filter(item));
+  }
+
+  _onFilterInput(e) {
+    this._filterTerm = e.target.value;
+    // Reset highlighting when filter changes
+    this._highlightedIndex = 0;
+    this._scrollHighlightedIntoView();
+  }
+
   _filterIconClicked() {
     if (this.extensible) {
       this._addItem();
     }
     this._filterTerm = '';
+    this._highlightedIndex = 0;
     this.$.filter.focus();
   }
 
@@ -693,7 +715,7 @@ class TpDropdown extends BaseElement {
     // Toggle list only if it's not open or when the toggle icon is clicked or the click wasn't on the selector input.
     if (!this.isOpen || closest(rootTarget, '#toggleIcon', true) !== undefined || (!closest(rootTarget, '#filter', true))) {
       this.toggle();
-      this._setListFocus();
+      this._setListHighlight();
     }
   }
 
@@ -712,7 +734,7 @@ class TpDropdown extends BaseElement {
 
     if (this._isEnter(e)) {
       if (this.isOpen) {
-        if (this.extensible && !this.$.itemList.querySelector('div[role="option"]:focus')) {
+        if (this.extensible && this._highlightedIndex < 0) {
           this._addItem();
         }
 
@@ -728,30 +750,12 @@ class TpDropdown extends BaseElement {
 
     if (this.isOpen) {
       if (this._isDownKey(e)) {
-        this._focusNextItem();
+        this._highlightNextItem();
         e.preventDefault();
       }
 
       if (this._isUpKey(e)) {
-        this._focusPrevItem();
-        e.preventDefault();
-      }
-    } else {
-      if (this._isDownKey(e)) {
-        if (this.value === undefined && this.items && this.items.length > 0) {
-          this.$.itemList.select(0);
-        } else {
-          this.$.itemList.selectNext();
-        }
-        e.preventDefault();
-      }
-
-      if (this._isUpKey(e)) {
-        if (this.value === undefined && this.items && this.items.length > 0) {
-          this.$.itemList.select(this.items.length - 1);
-        } else {
-          this.$.itemList.selectPrevious();
-        }
+        this._highlightPrevItem();
         e.preventDefault();
       }
     }
@@ -780,10 +784,16 @@ class TpDropdown extends BaseElement {
       }
 
       this._filterTerm = '';
+      this._highlightedIndex = 0;
     }
 
     if (this._isUpKey(e) || this._isDownKey(e)) {
-      this._setListFocus();
+      // Navigate in the list while keeping focus in filter
+      if (this._isDownKey(e)) {
+        this._highlightNextItem();
+      } else {
+        this._highlightPrevItem();
+      }
       e.preventDefault();
       e.stopPropagation();
     }
@@ -814,54 +824,52 @@ class TpDropdown extends BaseElement {
   }
 
   _selectItem() {
-    var item = this.$.itemList.querySelector('div[role="option"]:focus');
+    const visibleItems = this._getVisibleItems();
+    const highlightedItem = visibleItems[this._highlightedIndex];
 
-    if (item) {
-      this.value = item.value;
+    if (highlightedItem) {
+      this.value = highlightedItem.value;
       this.dispatchEvent(new CustomEvent('selection-changed', { detail: this.value, bubbles: true, composed: true }));
     }
   }
 
-  _setListFocus() {
-    var item = this.$.itemList.querySelector('div[role="option"].iron-selected') || this.$.itemList.querySelector('div[role="option"]');
-
-    if (item) {
-      item.focus();
-    }
-  }
-
-  _focusNextItem() {
-    var item = this.$.itemList.querySelector('div[role="option"]:focus');
-    if (!item) {
+  _setListHighlight() {
+    // Initialize highlighting to current value or first item
+    const visibleItems = this._getVisibleItems();
+    if (visibleItems.length === 0) {
+      this._highlightedIndex = -1;
       return;
     }
 
-    var next = item.nextElementSibling;
+    // Try to highlight the currently selected value
+    const currentIndex = visibleItems.findIndex(item => item.value === this.value);
+    this._highlightedIndex = currentIndex >= 0 ? currentIndex : 0;
+    this._scrollHighlightedIntoView();
+  }
 
-    if (!next || next.tagName !== 'DIV') {
-      next = this.$.itemList.querySelector('div[role="option"]');
-    }
-
-    if (next) {
-      next.focus();
+  _scrollHighlightedIntoView() {
+    if (this._highlightedIndex < 0) return;
+    
+    const highlightedElement = this.shadowRoot.querySelector('div[role="option"][highlighted]');
+    if (highlightedElement) {
+      highlightedElement.scrollIntoView({ block: 'nearest', inline: 'nearest' });
     }
   }
 
-  _focusPrevItem() {
-    var item = this.$.itemList.querySelector('div[role="option"]:focus');
-    if (!item) {
-      return;
-    }
+  _highlightNextItem() {
+    const visibleItems = this._getVisibleItems();
+    if (visibleItems.length === 0) return;
 
-    var next = item.previousElementSibling;
+    this._highlightedIndex = (this._highlightedIndex + 1) % visibleItems.length;
+    this._scrollHighlightedIntoView();
+  }
 
-    if (!next || next.tagName !== 'DIV') {
-      next = this.$.itemList.querySelector('div[role="option"]:last-of-type');
-    }
+  _highlightPrevItem() {
+    const visibleItems = this._getVisibleItems();
+    if (visibleItems.length === 0) return;
 
-    if (next) {
-      next.focus();
-    }
+    this._highlightedIndex = this._highlightedIndex <= 0 ? visibleItems.length - 1 : this._highlightedIndex - 1;
+    this._scrollHighlightedIntoView();
   }
 }