diff --git a/builtin/clone.c b/builtin/clone.c
index f9c380eb6c5..58fee9874f0 100644
--- a/builtin/clone.c
+++ b/builtin/clone.c
@@ -232,16 +232,26 @@ static void strip_trailing_slashes(char *dir)
 static int add_one_reference(struct string_list_item *item, void *cb_data)
 {
 	char *ref_git;
+	const char *repo;
 	struct strbuf alternate = STRBUF_INIT;
 
-	/* Beware: real_path() and mkpath() return static buffer */
+	/* Beware: read_gitfile(), real_path() and mkpath() return static buffer */
 	ref_git = xstrdup(real_path(item->string));
-	if (is_directory(mkpath("%s/.git/objects", ref_git))) {
+
+	repo = read_gitfile(ref_git);
+	if (!repo)
+		repo = read_gitfile(mkpath("%s/.git", ref_git));
+	if (repo) {
+		free(ref_git);
+		ref_git = xstrdup(repo);
+	}
+
+	if (!repo && is_directory(mkpath("%s/.git/objects", ref_git))) {
 		char *ref_git_git = mkpathdup("%s/.git", ref_git);
 		free(ref_git);
 		ref_git = ref_git_git;
 	} else if (!is_directory(mkpath("%s/objects", ref_git)))
-		die(_("reference repository '%s' is not a local directory."),
+		die(_("reference repository '%s' is not a local repository."),
 		    item->string);
 
 	strbuf_addf(&alternate, "%s/objects", ref_git);
diff --git a/t/t5700-clone-reference.sh b/t/t5700-clone-reference.sh
index 60f1552adef..6537911a430 100755
--- a/t/t5700-clone-reference.sh
+++ b/t/t5700-clone-reference.sh
@@ -185,4 +185,17 @@ test_expect_success 'fetch with incomplete alternates' '
 	! grep " want $tag_object" "$U.K"
 '
 
+test_expect_success 'clone using repo with gitfile as a reference' '
+	git clone --separate-git-dir=L A M &&
+	git clone --reference=M A N &&
+	echo "$base_dir/L/objects" >expected &&
+	test_cmp expected "$base_dir/N/.git/objects/info/alternates"
+'
+
+test_expect_success 'clone using repo pointed at by gitfile as reference' '
+	git clone --reference=M/.git A O &&
+	echo "$base_dir/L/objects" >expected &&
+	test_cmp expected "$base_dir/O/.git/objects/info/alternates"
+'
+
 test_done