diff --git a/src/install/lockfile.zig b/src/install/lockfile.zig
index eb399fee0567bc..d745ec86c9502e 100644
--- a/src/install/lockfile.zig
+++ b/src/install/lockfile.zig
@@ -543,7 +543,7 @@ pub const Tree = struct {
         for (this_dependencies) |dep_id| {
             const dep = builder.dependencies[dep_id];
             if (dep.name_hash != dependency.name_hash) continue;
-            if (builder.resolutions[dep_id] != package_id) {
+            if (builder.resolutions[dep_id] != package_id and !dependency.behavior.isPeer()) {
                 if (as_defined and !dep.behavior.isPeer()) {
                     builder.maybeReportError("Package \"{}@{}\" has a dependency loop\n  Resolution: \"{}@{}\"\n  Dependency: \"{}@{}\"", .{
                         builder.packageName(package_id),
diff --git a/test/cli/install/registry/bun-install-registry.test.ts b/test/cli/install/registry/bun-install-registry.test.ts
index 932e0ae6f7713c..c7c575dd0d8343 100644
--- a/test/cli/install/registry/bun-install-registry.test.ts
+++ b/test/cli/install/registry/bun-install-registry.test.ts
@@ -180,6 +180,87 @@ test("dependency from root satisfies range from dependency", async () => {
   expect(await exited).toBe(0);
 });
 
+test("peerDependency in child npm dependency should not maintain old version when package is upgraded", async () => {
+  await writeFile(
+    join(packageDir, "package.json"),
+    JSON.stringify({
+      name: "foo",
+      version: "1.0.0",
+      dependencies: {
+        "peer-deps-fixed": "1.0.0",
+        "no-deps": "1.0.0",
+      },
+    }),
+  );
+
+  var { stdout, stderr, exited } = spawn({
+    cmd: [bunExe(), "install"],
+    cwd: packageDir,
+    stdout: null,
+    stdin: "pipe",
+    stderr: "pipe",
+    env,
+  });
+
+  expect(stderr).toBeDefined();
+  var err = await new Response(stderr).text();
+  expect(stdout).toBeDefined();
+  var out = await new Response(stdout).text();
+  expect(err).toContain("Saved lockfile");
+  expect(err).not.toContain("not found");
+  expect(err).not.toContain("error:");
+  expect(out.replace(/\s*\[[0-9\.]+m?s\]\s*$/, "").split(/\r?\n/)).toEqual([
+    "",
+    " + no-deps@1.0.0",
+    " + peer-deps-fixed@1.0.0",
+    "",
+    " 2 packages installed",
+  ]);
+  expect(await file(join(packageDir, "node_modules", "no-deps", "package.json")).json()).toEqual({
+    name: "no-deps",
+    version: "1.0.0",
+  } as any);
+  expect(await exited).toBe(0);
+
+  await writeFile(
+    join(packageDir, "package.json"),
+    JSON.stringify({
+      name: "foo",
+      version: "1.0.0",
+      dependencies: {
+        "peer-deps-fixed": "1.0.0",
+        "no-deps": "1.0.1", // upgrade the package
+      },
+    }),
+  );
+
+  ({ stdout, stderr, exited } = spawn({
+    cmd: [bunExe(), "install"],
+    cwd: packageDir,
+    stdout: null,
+    stdin: "pipe",
+    stderr: "pipe",
+    env,
+  }));
+
+  err = await new Response(stderr).text();
+  out = await new Response(stdout).text();
+  expect(err).not.toContain("not found");
+  expect(err).not.toContain("error:");
+  expect(await file(join(packageDir, "node_modules", "no-deps", "package.json")).json()).toEqual({
+    name: "no-deps",
+    version: "1.0.1",
+  } as any);
+  expect(await exists(join(packageDir, "node_modules", "peer-deps-fixed", "node_modules"))).toBeFalse();
+  expect(out.replace(/\s*\[[0-9\.]+m?s\]\s*$/, "").split(/\r?\n/)).toEqual([
+    "",
+    " + no-deps@1.0.1",
+    "",
+    " 1 package installed",
+  ]);
+  expect(await exited).toBe(0);
+});
+
 test("package added after install", async () => {
   await writeFile(
     join(packageDir, "package.json"),
@@ -3997,48 +4078,46 @@ describe("yarn tests", () => {
     expect(await exited).toBe(0);
   });
 
-  test.todo(
-    "it should install in such a way that two identical packages with different peer dependencies are different instances",
-    async () => {
-      await writeFile(
-        join(packageDir, "package.json"),
-        JSON.stringify({
-          name: "foo",
-          version: "1.0.0",
-          dependencies: {
-            "provides-peer-deps-1-0-0": "1.0.0",
-            "provides-peer-deps-2-0-0": "1.0.0",
-          },
-        }),
-      );
+  test("it should install in such a way that two identical packages with different peer dependencies are different instances", async () => {
+    await writeFile(
+      join(packageDir, "package.json"),
+      JSON.stringify({
+        name: "foo",
+        version: "1.0.0",
+        dependencies: {
+          "provides-peer-deps-1-0-0": "1.0.0",
+          "provides-peer-deps-2-0-0": "1.0.0",
+        },
+      }),
+    );
 
-      var { stdout, stderr, exited } = spawn({
-        cmd: [bunExe(), "install"],
-        cwd: packageDir,
-        stdout: null,
-        stdin: "pipe",
-        stderr: "pipe",
-        env,
-      });
+    var { stdout, stderr, exited } = spawn({
+      cmd: [bunExe(), "install"],
+      cwd: packageDir,
+      stdout: null,
+      stdin: "pipe",
+      stderr: "pipe",
+      env,
+    });
 
-      var err = await new Response(stderr).text();
-      var out = await new Response(stdout).text();
-      expect(err).toContain("Saved lockfile");
-      expect(err).not.toContain("error:");
-      expect(err).not.toContain("not found");
-      expect(err).not.toContain("incorrect peer dependency");
-      expect(out.replace(/\s*\[[0-9\.]+m?s\]\s*$/, "").split(/\r?\n/)).toEqual([
-        "",
-        " + provides-peer-deps-1-0-0@1.0.0",
-        " + provides-peer-deps-2-0-0@1.0.0",
-        "",
-        " 5 packages installed",
-      ]);
-      expect(await exited).toBe(0);
+    var err = await new Response(stderr).text();
+    var out = await new Response(stdout).text();
+    expect(err).toContain("Saved lockfile");
+    expect(err).not.toContain("error:");
+    expect(err).not.toContain("not found");
+    expect(err).not.toContain("incorrect peer dependency");
+    expect(out.replace(/\s*\[[0-9\.]+m?s\]\s*$/, "").split(/\r?\n/)).toEqual([
+      "",
+      " + provides-peer-deps-1-0-0@1.0.0",
+      " + provides-peer-deps-2-0-0@1.0.0",
+      "",
+      " 5 packages installed",
+    ]);
+    expect(await exited).toBe(0);
 
-      await writeFile(
-        join(packageDir, "test.js"),
-        `console.log(
+    await writeFile(
+      join(packageDir, "test.js"),
+      `console.log(
         require("provides-peer-deps-1-0-0").dependencies["peer-deps"] ===
           require("provides-peer-deps-2-0-0").dependencies["peer-deps"]
       );
@@ -4086,24 +4165,23 @@ describe("yarn tests", () => {
           },
         })
       );`,
-      );
+    );
 
-      ({ stdout, stderr, exited } = spawn({
-        cmd: [bunExe(), "test.js"],
-        cwd: packageDir,
-        stdout: null,
-        stdin: "pipe",
-        stderr: "pipe",
-        env,
-      }));
+    ({ stdout, stderr, exited } = spawn({
+      cmd: [bunExe(), "test.js"],
+      cwd: packageDir,
+      stdout: null,
+      stdin: "pipe",
+      stderr: "pipe",
+      env,
+    }));
 
-      err = await new Response(stderr).text();
-      out = await new Response(stdout).text();
-      expect(out).toBe("true\ntrue\ntrue");
-      expect(err).toBeEmpty();
-      expect(await exited).toBe(0);
-    },
-  );
+    err = await new Response(stderr).text();
+    out = await new Response(stdout).text();
+    expect(out).toBe("true\ntrue\nfalse\n");
+    expect(err).toBeEmpty();
+    expect(await exited).toBe(0);
+  });
 
   test("it should install in such a way that two identical packages with the same peer dependencies are the same instances (simple)", async () => {
     await writeFile(