WIF 3.5 issue with infinite loop only on localhost domains

Question

When I run my application on localhost the app goes into infinite loop upon authentication process, more specifically when token is issued from STS and received on RP and after that the request goes back to STS and this process repeats inifinitely.

My web.config of RP website:

<?xml version="1.0" encoding="utf-8"?>
<configuration>
  <configSections>
    <section name="microsoft.identityModel" type="Microsoft.IdentityModel.Configuration.MicrosoftIdentityModelSection, Microsoft.IdentityModel, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" />
  </configSections>

  <system.webServer>
    <modules runAllManagedModulesForAllRequests="true">
        <add name="WSFederationAuthenticationModule" type="Microsoft.IdentityModel.Web.WSFederationAuthenticationModule, Microsoft.IdentityModel, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" preCondition="managedHandler" />
        <add name="SessionAuthenticationModule" type="Microsoft.IdentityModel.Web.SessionAuthenticationModule, Microsoft.IdentityModel, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" preCondition="managedHandler" />
    </modules>
    <system.web>
        <compilation debug="true" targetFramework="4.0">
          <assemblies>
            <add assembly="Microsoft.IdentityModel, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" />
          </assemblies>
        </compilation>
        <httpModules>
          <add name="Session" type="System.Web.SessionState.SessionStateModule" />
          <add name="WSFederationAuthenticationModule" type="Microsoft.IdentityModel.Web.WSFederationAuthenticationModule, Microsoft.IdentityModel, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" />
          <add name="SessionAuthenticationModule" type="Microsoft.IdentityModel.Web.SessionAuthenticationModule, Microsoft.IdentityModel, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" />
        </httpModules>
        <microsoft.identityModel>
            <service>
                <certificateValidation certificateValidationMode="None" />

                <issuerNameRegistry type="Microsoft.IdentityModel.Tokens.ConfigurationBasedIssuerNameRegistry, Microsoft.IdentityModel, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35">
                    <trustedIssuers>
                      <add thumbprint="*VALUE*" name="CertficateName" />
                    </trustedIssuers>
                </issuerNameRegistry>

                <audienceUris>
                    <add value="http://localhost/RP/" />
                </audienceUris>

                <federatedAuthentication>
                    <wsFederation
                        issuer="http://localhost/STS/"
                        realm="http://localhost/RP/"
                        reply="http://localhost/RP/"
                        requireHttps="false"
                        persistentCookiesOnPassiveRedirects="true" />
                    <cookieHandler
                        mode="Default"
                        domain="localhost"
                        hideFromScript="false"
                        name="FedAuthCookie"
                        path="/RP/"
                        requireSsl="false"
                        persistentSessionLifetime="60.0:0:0" />
                </federatedAuthentication>
            </service>
        </microsoft.identityModel>
</configuration>

Strange thing that with exactly the same configuration the app works with domains like http://test.com/RP or http://test.com/RP/, but won't work with http://localhost/RP or http://localhost/RP/.

I have no errors neither in Event Viewer nor at runtime, token is issued by STS, but maybe for some reason it is not applied or accepted by RP.