diff --git a/__tests__/commands/install/integration-deduping.js b/__tests__/commands/install/integration-deduping.js
index b822194188..d08757fd20 100644
--- a/__tests__/commands/install/integration-deduping.js
+++ b/__tests__/commands/install/integration-deduping.js
@@ -220,3 +220,21 @@ test.concurrent('install should not hardlink repeated dependencies if linkDuplic
     expect(b_a.ino).not.toEqual(c_a.ino);
   });
 });
+
+test.concurrent('install should not copy node_modules when hardlinking', (): Promise<void> => {
+  // https://github.com/yarnpkg/yarn/issues/2734
+  // A@1 -> B@1 -> C@1
+  //     -> C@2
+  // B@2
+  // C@2
+  // D@1 -> B@1 (hardlink) -> C@1 (hardlink)
+  //     -> C@2
+  return runInstall({linkDuplicates: true}, 'hardlink-collision', async config => {
+    let a_1 = await fs.stat(path.join(config.cwd, 'node_modules/a/node_modules/b/package.json'));
+    let d_1 = await fs.stat(path.join(config.cwd, 'node_modules/d/node_modules/b/package.json'));
+    expect(a_1.ino).toEqual(d_1.ino);
+    a_1 = await fs.stat(path.join(config.cwd, 'node_modules/a/node_modules/b/node_modules/c/package.json'));
+    d_1 = await fs.stat(path.join(config.cwd, 'node_modules/d/node_modules/b/node_modules/c/package.json'));
+    expect(a_1.ino).toEqual(d_1.ino);
+  });
+});
diff --git a/__tests__/fixtures/install/hardlink-collision/deps/a-1/package.json b/__tests__/fixtures/install/hardlink-collision/deps/a-1/package.json
new file mode 100644
index 0000000000..c2c8651d69
--- /dev/null
+++ b/__tests__/fixtures/install/hardlink-collision/deps/a-1/package.json
@@ -0,0 +1,8 @@
+{
+  "name": "a",
+  "version": "1.0.0",
+  "dependencies": {
+    "b": "file:../b-1",
+    "c": "file:../c-2"
+  }
+}
diff --git a/__tests__/fixtures/install/hardlink-collision/deps/b-1/package.json b/__tests__/fixtures/install/hardlink-collision/deps/b-1/package.json
new file mode 100644
index 0000000000..ad3074b214
--- /dev/null
+++ b/__tests__/fixtures/install/hardlink-collision/deps/b-1/package.json
@@ -0,0 +1,7 @@
+{
+  "name": "b",
+  "version": "1.0.0",
+  "dependencies": {
+    "c": "file:../c-1"
+  }
+}
diff --git a/__tests__/fixtures/install/hardlink-collision/deps/b-2/package.json b/__tests__/fixtures/install/hardlink-collision/deps/b-2/package.json
new file mode 100644
index 0000000000..57549744f3
--- /dev/null
+++ b/__tests__/fixtures/install/hardlink-collision/deps/b-2/package.json
@@ -0,0 +1,4 @@
+{
+  "name": "b",
+  "version": "2.0.0"
+}
diff --git a/__tests__/fixtures/install/hardlink-collision/deps/c-1/package.json b/__tests__/fixtures/install/hardlink-collision/deps/c-1/package.json
new file mode 100644
index 0000000000..abd3384930
--- /dev/null
+++ b/__tests__/fixtures/install/hardlink-collision/deps/c-1/package.json
@@ -0,0 +1,4 @@
+{
+  "name": "c",
+  "version": "1.0.0"
+}
diff --git a/__tests__/fixtures/install/hardlink-collision/deps/c-2/package.json b/__tests__/fixtures/install/hardlink-collision/deps/c-2/package.json
new file mode 100644
index 0000000000..eede1fcd97
--- /dev/null
+++ b/__tests__/fixtures/install/hardlink-collision/deps/c-2/package.json
@@ -0,0 +1,4 @@
+{
+  "name": "c",
+  "version": "2.0.0"
+}
diff --git a/__tests__/fixtures/install/hardlink-collision/deps/c-3/package.json b/__tests__/fixtures/install/hardlink-collision/deps/c-3/package.json
new file mode 100644
index 0000000000..6915ecb021
--- /dev/null
+++ b/__tests__/fixtures/install/hardlink-collision/deps/c-3/package.json
@@ -0,0 +1,4 @@
+{
+  "name": "c",
+  "version": "3.0.0"
+}
diff --git a/__tests__/fixtures/install/hardlink-collision/deps/d-1/package.json b/__tests__/fixtures/install/hardlink-collision/deps/d-1/package.json
new file mode 100644
index 0000000000..eae1f73732
--- /dev/null
+++ b/__tests__/fixtures/install/hardlink-collision/deps/d-1/package.json
@@ -0,0 +1,8 @@
+{
+  "name": "a",
+  "version": "2.0.0",
+  "dependencies": {
+    "b": "file:../b-1",
+    "c": "file:../c-2"
+  }
+}
diff --git a/__tests__/fixtures/install/hardlink-collision/package.json b/__tests__/fixtures/install/hardlink-collision/package.json
new file mode 100644
index 0000000000..9b49885a10
--- /dev/null
+++ b/__tests__/fixtures/install/hardlink-collision/package.json
@@ -0,0 +1,8 @@
+{
+  "dependencies": {
+    "a": "file:deps/a-1",
+    "b": "file:deps/b-2",
+    "c": "file:deps/c-3",
+    "d": "file:deps/d-1"
+  }
+}
diff --git a/src/util/fs.js b/src/util/fs.js
index 9adfe91261..da9bc53320 100644
--- a/src/util/fs.js
+++ b/src/util/fs.js
@@ -450,6 +450,8 @@ async function buildActionsForHardlink(
 
       // push all files to queue
       invariant(srcFiles, 'src files not initialised');
+      // hardlinking is per package, not going into sub packages
+      srcFiles = srcFiles.filter(f => f !== 'node_modules');
       let remaining = srcFiles.length;
       if (!remaining) {
         onDone();