diff --git a/Annex/GitOverlay.hs b/Annex/GitOverlay.hs
index 4230ed4a4f..7e18d225bc 100644
--- a/Annex/GitOverlay.hs
+++ b/Annex/GitOverlay.hs
@@ -45,11 +45,13 @@ withWorkTreeRelated :: FilePath -> Annex a -> Annex a
 withWorkTreeRelated d = withAltRepo modrepo unmodrepo
   where
 	modrepo g = do
-		let g' = g { location = modlocation (location g) }
-		addGitEnv g' "GIT_COMMON_DIR" =<< absPath (localGitDir g)
-	unmodrepo g g' = g' { gitEnv = gitEnv g, location = location g }
-	modlocation l@(Local {}) = l { gitdir = d }
-	modlocation _ = error "withWorkTreeRelated of non-local git repo"
+		g' <- addGitEnv g "GIT_COMMON_DIR" =<< absPath (localGitDir g)
+		g'' <- addGitEnv g' "GIT_DIR" d
+		return (g'' { gitEnvOverridesGitDir = True })
+	unmodrepo g g' = g'
+		{ gitEnv = gitEnv g
+		, gitEnvOverridesGitDir = gitEnvOverridesGitDir g
+		}
 
 withAltRepo 
 	:: (Repo -> IO Repo)
diff --git a/Git/Command.hs b/Git/Command.hs
index 02e3e5a340..2060563688 100644
--- a/Git/Command.hs
+++ b/Git/Command.hs
@@ -17,9 +17,11 @@ import qualified Utility.CoProcess as CoProcess
 {- Constructs a git command line operating on the specified repo. -}
 gitCommandLine :: [CommandParam] -> Repo -> [CommandParam]
 gitCommandLine params r@(Repo { location = l@(Local { } ) }) =
-	setdir : settree ++ gitGlobalOpts r ++ params
+	setdir ++ settree ++ gitGlobalOpts r ++ params
   where
-	setdir = Param $ "--git-dir=" ++ gitdir l
+	setdir
+		| gitEnvOverridesGitDir r = []
+		| otherwise = [Param $ "--git-dir=" ++ gitdir l]
 	settree = case worktree l of
 		Nothing -> []
 		Just t -> [Param $ "--work-tree=" ++ t]
diff --git a/Git/Construct.hs b/Git/Construct.hs
index 03dd29f416..765562212e 100644
--- a/Git/Construct.hs
+++ b/Git/Construct.hs
@@ -236,6 +236,7 @@ newFrom l = Repo
 	, remotes = []
 	, remoteName = Nothing
 	, gitEnv = Nothing
+	, gitEnvOverridesGitDir = False
 	, gitGlobalOpts = []
 	}
 
diff --git a/Git/Types.hs b/Git/Types.hs
index 44135738da..327c1d7222 100644
--- a/Git/Types.hs
+++ b/Git/Types.hs
@@ -39,6 +39,7 @@ data Repo = Repo
 	, remoteName :: Maybe RemoteName
 	-- alternate environment to use when running git commands
 	, gitEnv :: Maybe [(String, String)]
+	, gitEnvOverridesGitDir :: Bool
 	-- global options to pass to git when running git commands
 	, gitGlobalOpts :: [CommandParam]
 	} deriving (Show, Eq, Ord)
diff --git a/doc/design/adjusted_branches.mdwn b/doc/design/adjusted_branches.mdwn
index 2b2e37a27e..e94439d66a 100644
--- a/doc/design/adjusted_branches.mdwn
+++ b/doc/design/adjusted_branches.mdwn
@@ -286,5 +286,3 @@ into adjusted view worktrees.]
   have already been handled by updateAdjustedBranch. But, if another remote
   pushed a new master at just the right time, the adjusted branch could be
   rebased on top of a master that it doesn't incorporate, which is wrong.
-* Annex symlinks generated in merging into an adjusted branch are badly
-  formed to point to the temp git dir's annex object dir.