diff --git a/lib/markdown2.py b/lib/markdown2.py
index d8a00942..756173cb 100755
--- a/lib/markdown2.py
+++ b/lib/markdown2.py
@@ -2371,10 +2371,14 @@ def _unescape_special_chars(self, text: str) -> str:
         hashmap = tuple(self._escape_table.items()) + tuple(self._code_table.items())
         # html_blocks table is in format {hash: item} compared to usual {item: hash}
         hashmap += tuple(tuple(reversed(i)) for i in self.html_blocks.items())
+        replacements = {}
+        for ch, hash in hashmap:
+            replacements.setdefault(hash, ch)
         while True:
             orig_text = text
-            for ch, hash in hashmap:
-                text = text.replace(hash, ch)
+            # Scan once per nesting level instead of once for every stored hash.
+            text = re.sub(r'md5-[0-9a-f]{32}',
+                          lambda match: replacements.get(match[0], match[0]), text)
             if text == orig_text:
                 break
         return text
diff --git a/perf/issue635.py b/perf/issue635.py
new file mode 100644
index 00000000..0cb14c69
--- /dev/null
+++ b/perf/issue635.py
@@ -0,0 +1,47 @@
+"""Reproduce #635 with synthetic distinct code spans; no timing assertions.
+
+Run with the same interpreter before and after the change:
+    python perf/issue635.py
+"""
+import hashlib
+import json
+from pathlib import Path
+import statistics
+import sys
+import time
+
+sys.path.insert(0, str(Path(__file__).resolve().parents[1] / 'lib'))
+import markdown2
+
+
+def measure(count):
+    source = '\n\n'.join('`value_%s`' % i for i in range(count))
+    expected = '\n\n'.join('<p><code>value_%s</code></p>' % i for i in range(count)) + '\n'
+    totals, unescapes = [], []
+    for _ in range(3):
+        converter = markdown2.Markdown()
+        original = converter._unescape_special_chars
+        timings = []
+
+        def timed(text):
+            start = time.perf_counter()
+            result = original(text)
+            timings.append(time.perf_counter() - start)
+            return result
+
+        converter._unescape_special_chars = timed
+        start = time.perf_counter()
+        output = converter.convert(source)
+        totals.append(time.perf_counter() - start)
+        unescapes.append(sum(timings))
+        assert output == expected
+    return {
+        'spans': count,
+        'total_seconds_median': statistics.median(totals),
+        'unescape_seconds_median': statistics.median(unescapes),
+        'output_sha256': hashlib.sha256(output.encode()).hexdigest(),
+    }
+
+
+if __name__ == '__main__':
+    print(json.dumps({'python': sys.version, 'runs': [measure(n) for n in (500, 1000, 2000, 4000)]}, indent=2))
diff --git a/test/test_markdown2.py b/test/test_markdown2.py
index 0dd22ad9..d7986eed 100755
--- a/test/test_markdown2.py
+++ b/test/test_markdown2.py
@@ -220,6 +220,56 @@ class DirectTestCase(_MarkdownTestCase):
     Python-markdown (markdown.py).
     """
 
+    def test_many_distinct_code_spans(self):
+        source = '\n\n'.join('`value_%s`' % i for i in range(1000))
+        expected = '\n\n'.join('<p><code>value_%s</code></p>' % i for i in range(1000)) + '\n'
+        self.assertEqual(markdown2.markdown(source), expected)
+
+    def test_unescape_nested_tokens(self):
+        md = markdown2.Markdown()
+        md.reset()
+        inner = r'\1\g<0>\\ *'
+        middle = '<code>%s</code>' % markdown2._hash_text(inner)
+        outer = '<div>%s</div>' % markdown2._hash_text(middle)
+        for entries in ([(inner, markdown2._hash_text(inner)),
+                         (middle, markdown2._hash_text(middle))],
+                        [(middle, markdown2._hash_text(middle)),
+                         (inner, markdown2._hash_text(inner))]):
+            md._code_table = dict(entries)
+            md.html_blocks = {markdown2._hash_text(outer): outer}
+            self.assertEqual(md._unescape_special_chars(markdown2._hash_text(outer)),
+                             '<div><code>%s</code></div>' % inner)
+
+    def test_unescape_special_chars_inside_html(self):
+        md = markdown2.Markdown()
+        md.reset()
+        html = '<div>%s %s</div>' % (md._escape_table['*'], md._escape_table['\\'])
+        token = markdown2._hash_text(html)
+        md.html_blocks[token] = html
+        self.assertEqual(md._unescape_special_chars(token), '<div>* \\</div>')
+
+    def test_unescape_leaves_unknown_tokens_and_plain_text(self):
+        md = markdown2.Markdown()
+        md.reset()
+        text = 'plain \\ text <div>md5-%s</div>' % ('0' * 32)
+        self.assertEqual(md._unescape_special_chars(text), text)
+
+    def test_unescape_repeated_tokens(self):
+        md = markdown2.Markdown()
+        md.reset()
+        value = r'\g<0> * literal'
+        token = markdown2._hash_text(value)
+        md._code_table[value] = token
+        self.assertEqual(md._unescape_special_chars('%s %s' % (token, token)), '%s %s' % (value, value))
+
+    def test_unescape_duplicate_token_priority(self):
+        md = markdown2.Markdown()
+        md.reset()
+        token = md._escape_table['*']
+        md._code_table['code value'] = token
+        md.html_blocks[token] = '<div>HTML value</div>'
+        self.assertEqual(md._unescape_special_chars(token), '*')
+
     def test_slow_hr(self):
         import time
         text = """\