diff --git a/material/templates/partials/nav-item.html b/material/templates/partials/nav-item.html
index d127bb16c..08752b760 100644
--- a/material/templates/partials/nav-item.html
+++ b/material/templates/partials/nav-item.html
@@ -53,20 +53,33 @@
         {% endif %}
       {% endfor %}
     {% endif %}
-    {% set tabs = "navigation.tabs" in features %}
-    {% set sections = "navigation.sections" in features %}
-    {% if tabs and level == 1 or sections and tabs >= level - 1 %}
-      {% set class = class ~ " md-nav__item--section" %}
-      {% set is_section = true %}
-    {% elif not nav_item.active and "navigation.prune" in features %}
-      {% set class = class ~ " md-nav__item--pruned" %}
-      {% set is_pruned = true %}
+    {% if "navigation.tabs" in features %}
+      {% if level == 1 and nav_item.active %}
+        {% set class = class ~ " md-nav__item--section" %}
+        {% set is_section = true %}
+      {% endif %}
+      {% if "navigation.sections" in features %}
+        {% if level == 2 and nav_item.parent.active %}
+          {% set class = class ~ " md-nav__item--section" %}
+          {% set is_section = true %}
+        {% endif %}
+      {% endif %}
+    {% elif "navigation.sections" in features %}
+      {% if level == 1 %}
+        {% set class = class ~ " md-nav__item--section" %}
+        {% set is_section = true %}
+      {% endif %}
+    {% endif %}
+    {% if "navigation.prune" in features %}
+      {% if not is_section and not nav_item.active %}
+        {% set class = class ~ " md-nav__item--pruned" %}
+        {% set is_pruned = true %}
+      {% endif %}
     {% endif %}
     <li class="{{ class }} md-nav__item--nested">
       {% if not is_pruned %}
         {% set checked = "checked" if nav_item.active %}
-        {% set is_expanded = "navigation.expand" in features %}
-        {% if is_expanded and not checked %}
+        {% if "navigation.expand" in features and not checked %}
           {% set indeterminate = "md-toggle--indeterminate" %}
         {% endif %}
         <input class="md-nav__toggle md-toggle {{ indeterminate }}" type="checkbox" id="{{ path }}" {{ checked }}>
diff --git a/src/templates/partials/nav-item.html b/src/templates/partials/nav-item.html
index 92d669a38..02568b297 100644
--- a/src/templates/partials/nav-item.html
+++ b/src/templates/partials/nav-item.html
@@ -107,17 +107,43 @@
       {% endfor %}
     {% endif %}
 
-    <!-- Determine whether to render item as a section -->
-    {% set tabs = "navigation.tabs" in features %}
-    {% set sections = "navigation.sections" in features %}
-    {% if tabs and level == 1 or sections and tabs >= level - 1 %}
-      {% set class = class ~ " md-nav__item--section" %}
-      {% set is_section = true %}
+    <!-- Navigation tabs -->
+    {% if "navigation.tabs" in features %}
 
-    <!-- Determine whether to prune inactive item -->
-    {% elif not nav_item.active and "navigation.prune" in features %}
-      {% set class = class ~ " md-nav__item--pruned" %}
-      {% set is_pruned = true %}
+      <!-- Render 1st level active item as section -->
+      {% if level == 1 and nav_item.active %}
+        {% set class = class ~ " md-nav__item--section" %}
+        {% set is_section = true %}
+      {% endif %}
+
+      <!-- Navigation tabs + sections -->
+      {% if "navigation.sections" in features %}
+
+        <!-- Render 2nd level items with nested items as sections -->
+        {% if level == 2 and nav_item.parent.active %}
+          {% set class = class ~ " md-nav__item--section" %}
+          {% set is_section = true %}
+        {% endif %}
+      {% endif %}
+
+    <!-- Navigation sections -->
+    {% elif "navigation.sections" in features %}
+
+      <!-- Render 1st level items with nested items as sections -->
+      {% if level == 1 %}
+        {% set class = class ~ " md-nav__item--section" %}
+        {% set is_section = true %}
+      {% endif %}
+    {% endif %}
+
+    <!-- Navigation pruning -->
+    {% if "navigation.prune" in features %}
+
+      <!-- Prune item if it is not a section and not active -->
+      {% if not is_section and not nav_item.active %}
+        {% set class = class ~ " md-nav__item--pruned" %}
+        {% set is_pruned = true %}
+      {% endif %}
     {% endif %}
 
     <!-- Nested navigation item -->
@@ -126,8 +152,7 @@
         {% set checked = "checked" if nav_item.active %}
 
         <!-- Determine checked and indeterminate state -->
-        {% set is_expanded = "navigation.expand" in features %}
-        {% if is_expanded and not checked %}
+        {% if "navigation.expand" in features and not checked %}
           {% set indeterminate = "md-toggle--indeterminate" %}
         {% endif %}