diff --git a/src/compiler/tsbuild.ts b/src/compiler/tsbuild.ts
index 763c62deccf..d7eb648bca2 100644
--- a/src/compiler/tsbuild.ts
+++ b/src/compiler/tsbuild.ts
@@ -13,7 +13,8 @@ namespace ts {
 
     interface DependencyGraph {
         buildQueue: ResolvedConfigFileName[];
-        referencingProjectsMap: ConfigFileMap<ConfigFileMap<true>>;
+        /** value in config File map is true if project is referenced using prepend */
+        referencingProjectsMap: ConfigFileMap<ConfigFileMap<boolean>>;
     }
 
     export interface BuildOptions {
@@ -907,17 +908,16 @@ namespace ts {
             }
 
             const buildResult = buildSingleProject(resolved);
-            // If declaration output changed then only queue in build for downstream projects
-            if (!(buildResult & BuildResultFlags.DeclarationOutputUnchanged)) {
-                const dependencyGraph = getGlobalDependencyGraph();
-                const referencingProjects = dependencyGraph.referencingProjectsMap.getValue(resolved);
-                if (!referencingProjects) return;
-                // Always use build order to queue projects
-                for (const project of dependencyGraph.buildQueue) {
-                    // Can skip circular references
-                    if (referencingProjects.hasKey(project)) {
-                        addProjToQueue(project);
-                    }
+            const dependencyGraph = getGlobalDependencyGraph();
+            const referencingProjects = dependencyGraph.referencingProjectsMap.getValue(resolved);
+            if (!referencingProjects) return;
+            // Always use build order to queue projects
+            for (const project of dependencyGraph.buildQueue) {
+                const prepend = referencingProjects.getValue(project);
+                // If the project is referenced with prepend, always build downstream projectm,
+                // otherwise queue it only if declaration output changed
+                if (prepend || (prepend !== undefined && !(buildResult & BuildResultFlags.DeclarationOutputUnchanged))) {
+                    addProjToQueue(project);
                 }
             }
         }
@@ -927,7 +927,7 @@ namespace ts {
             const permanentMarks = createFileMap<true>(toPath);
             const circularityReportStack: string[] = [];
             const buildOrder: ResolvedConfigFileName[] = [];
-            const referencingProjectsMap = createFileMap<ConfigFileMap<true>>(toPath);
+            const referencingProjectsMap = createFileMap<ConfigFileMap<boolean>>(toPath);
             for (const root of roots) {
                 visit(root);
             }
@@ -958,7 +958,7 @@ namespace ts {
                         visit(resolvedRefPath, inCircularContext || ref.circular);
                         // Get projects referencing resolvedRefPath and add projPath to it
                         const referencingProjects = getOrCreateValueFromConfigFileMap(referencingProjectsMap, resolvedRefPath, () => createFileMap(toPath));
-                        referencingProjects.setValue(projPath, true);
+                        referencingProjects.setValue(projPath, !!ref.prepend);
                     }
                 }
 
diff --git a/src/testRunner/unittests/tsbuildWatchMode.ts b/src/testRunner/unittests/tsbuildWatchMode.ts
index 12c82becef3..697d14f72ba 100644
--- a/src/testRunner/unittests/tsbuildWatchMode.ts
+++ b/src/testRunner/unittests/tsbuildWatchMode.ts
@@ -276,6 +276,81 @@ export class someClass2 { }`);
             verifyWatches(host);
         });
 
+        it("when referenced using prepend, builds referencing project even for non local change", () => {
+            const coreTsConfig: File = {
+                path: core[0].path,
+                content: JSON.stringify({
+                    compilerOptions: { composite: true, declaration: true, outFile: "index.js" }
+                })
+            };
+            const coreIndex: File = {
+                path: core[1].path,
+                content: `function foo() { return 10; }`
+            };
+            const logicTsConfig: File = {
+                path: logic[0].path,
+                content: JSON.stringify({
+                    compilerOptions: { composite: true, declaration: true, outFile: "index.js" },
+                    references: [{ path: "../core", prepend: true }]
+                })
+            };
+            const logicIndex: File = {
+                path: logic[1].path,
+                content: `function bar() { return foo() + 1 };`
+            };
+
+            const projectFiles = [coreTsConfig, coreIndex, logicTsConfig, logicIndex];
+            const host = createWatchedSystem([libFile, ...projectFiles], { currentDirectory: projectsLocation });
+            createSolutionBuilderWithWatch(host, [`${project}/${SubProject.logic}`]);
+            verifyWatches();
+            checkOutputErrorsInitial(host, emptyArray);
+            const outputFileStamps = getOutputFileStamps();
+            for (const stamp of outputFileStamps) {
+                assert.isDefined(stamp[1], `${stamp[0]} expected to be present`);
+            }
+
+            // Make non local change
+            verifyChangeInCore(`${coreIndex.content}
+function myFunc() { return 10; }`);
+
+            // Make local change to function bar
+            verifyChangeInCore(`${coreIndex.content}
+function myFunc() { return 100; }`);
+
+            function verifyChangeInCore(content: string) {
+                const outputFileStamps = getOutputFileStamps();
+                host.writeFile(coreIndex.path, content);
+
+                host.checkTimeoutQueueLengthAndRun(1); // Builds core
+                const changedCore = getOutputFileStamps();
+                verifyChangedFiles(changedCore, outputFileStamps, [
+                    ...getOutputFileNames(SubProject.core, "index")
+                ]);
+                host.checkTimeoutQueueLengthAndRun(1); // Builds logic
+                const changedLogic = getOutputFileStamps();
+                verifyChangedFiles(changedLogic, changedCore, [
+                    ...getOutputFileNames(SubProject.logic, "index")
+                ]);
+                host.checkTimeoutQueueLength(0);
+                checkOutputErrorsIncremental(host, emptyArray);
+                verifyWatches();
+            }
+
+            function getOutputFileStamps(): OutputFileStamp[] {
+                const result = [
+                    ...getOutputStamps(host, SubProject.core, "index"),
+                    ...getOutputStamps(host, SubProject.logic, "index"),
+                ];
+                return result;
+            }
+
+            function verifyWatches() {
+                checkWatchedFiles(host, projectFiles.map(f => f.path));
+                checkWatchedDirectories(host, emptyArray, /*recursive*/ false);
+                checkWatchedDirectories(host, [projectPath(SubProject.core), projectPath(SubProject.logic)], /*recursive*/ true);
+            }
+        });
+
         // TODO: write tests reporting errors but that will have more involved work since file
     });
 }