diff --git a/src/compiler/moduleSpecifiers.ts b/src/compiler/moduleSpecifiers.ts
index cd566c0e6e..fbb832400c 100644
--- a/src/compiler/moduleSpecifiers.ts
+++ b/src/compiler/moduleSpecifiers.ts
@@ -186,6 +186,18 @@ namespace ts.moduleSpecifiers {
         return result;
     }
 
+    function numberOfDirectorySeparators(str: string) {
+        const match = str.match(/\//g);
+        return match ? match.length : 0;
+    }
+
+    function comparePathsByNumberOfDirectrorySeparators(a: string, b: string) {
+        return compareValues(
+            numberOfDirectorySeparators(a),
+            numberOfDirectorySeparators(b)
+        );
+    }
+
     /**
      * Looks for existing imports that use symlinks to this module.
      * Symlinks will be returned first so they are preferred over the real path.
@@ -214,7 +226,32 @@ namespace ts.moduleSpecifiers {
             }
         });
         result.push(...targets);
-        return result;
+        if (result.length < 2) return result;
+
+        // Sort by paths closest to importing file Name directory
+        const allFileNames = arrayToMap(result, identity, getCanonicalFileName);
+        const sortedPaths: string[] = [];
+        for (
+            let directory = getDirectoryPath(toPath(importingFileName, cwd, getCanonicalFileName));
+            allFileNames.size !== 0;
+            directory = getDirectoryPath(directory)
+        ) {
+            const directoryStart = ensureTrailingDirectorySeparator(directory);
+            let pathsInDirectory: string[] | undefined;
+            allFileNames.forEach((canonicalFileName, fileName) => {
+                if (startsWith(canonicalFileName, directoryStart)) {
+                    (pathsInDirectory || (pathsInDirectory = [])).push(fileName);
+                    allFileNames.delete(fileName);
+                }
+            });
+            if (pathsInDirectory) {
+                if (pathsInDirectory.length > 1) {
+                    pathsInDirectory.sort(comparePathsByNumberOfDirectrorySeparators);
+                }
+                sortedPaths.push(...pathsInDirectory);
+            }
+        }
+        return sortedPaths;
     }
 
     function tryGetModuleNameFromAmbientModule(moduleSymbol: Symbol): string | undefined {
diff --git a/src/compiler/watch.ts b/src/compiler/watch.ts
index 06871fc9ca..3ee30ae28c 100644
--- a/src/compiler/watch.ts
+++ b/src/compiler/watch.ts
@@ -131,7 +131,11 @@ namespace ts {
     export function listFiles(program: ProgramToEmitFilesAndReportErrors, writeFileName: (s: string) => void) {
         if (program.getCompilerOptions().listFiles) {
             forEach(program.getSourceFiles(), file => {
-                writeFileName(file.fileName);
+                writeFileName(
+                    !file.redirectInfo ?
+                        file.fileName :
+                        `${file.fileName} -> ${file.redirectInfo.redirectTarget.fileName}`
+                );
             });
         }
     }
diff --git a/src/testRunner/tsconfig.json b/src/testRunner/tsconfig.json
index 14544ce0bc..49272d6c1b 100644
--- a/src/testRunner/tsconfig.json
+++ b/src/testRunner/tsconfig.json
@@ -109,6 +109,7 @@
         "unittests/tsbuild/transitiveReferences.ts",
         "unittests/tsbuild/watchEnvironment.ts",
         "unittests/tsbuild/watchMode.ts",
+        "unittests/tsc/declarationEmit.ts",
         "unittests/tscWatch/consoleClearing.ts",
         "unittests/tscWatch/emit.ts",
         "unittests/tscWatch/emitAndErrorUpdates.ts",
diff --git a/src/testRunner/unittests/tsc/declarationEmit.ts b/src/testRunner/unittests/tsc/declarationEmit.ts
new file mode 100644
index 0000000000..5577ad2202
--- /dev/null
+++ b/src/testRunner/unittests/tsc/declarationEmit.ts
@@ -0,0 +1,136 @@
+namespace ts {
+    describe("unittests:: tsc:: declarationEmit::", () => {
+        verifyTsc({
+            scenario: "declarationEmit",
+            subScenario: "when same version is referenced through source and another symlinked package",
+            fs: () => {
+                const fsaPackageJson = utils.dedent`
+                    {
+                        "name": "typescript-fsa",
+                        "version": "3.0.0-beta-2"
+                    }`;
+                const fsaIndex = utils.dedent`
+                    export interface Action<Payload> {
+                        type: string;
+                        payload: Payload;
+                    }
+                    export declare type ActionCreator<Payload> = {
+                        type: string;
+                        (payload: Payload): Action<Payload>;
+                    }
+                    export interface ActionCreatorFactory {
+                        <Payload = void>(type: string): ActionCreator<Payload>;
+                    }
+                    export declare function actionCreatorFactory(prefix?: string | null): ActionCreatorFactory;
+                    export default actionCreatorFactory;`;
+                return loadProjectFromFiles({
+                    "/src/plugin-two/index.d.ts": utils.dedent`
+                        declare const _default: {
+                            features: {
+                                featureOne: {
+                                    actions: {
+                                        featureOne: {
+                                            (payload: {
+                                                name: string;
+                                                order: number;
+                                            }, meta?: {
+                                                [key: string]: any;
+                                            }): import("typescript-fsa").Action<{
+                                                name: string;
+                                                order: number;
+                                            }>;
+                                        };
+                                    };
+                                    path: string;
+                                };
+                            };
+                        };
+                        export default _default;`,
+                    "/src/plugin-two/node_modules/typescript-fsa/package.json": fsaPackageJson,
+                    "/src/plugin-two/node_modules/typescript-fsa/index.d.ts": fsaIndex,
+                    "/src/plugin-one/tsconfig.json": utils.dedent`
+                        {
+                            "compilerOptions": {
+                                "target": "es5",
+                                "declaration": true,
+                            },
+                        }`,
+                    "/src/plugin-one/index.ts": utils.dedent`
+                        import pluginTwo from "plugin-two"; // include this to add reference to symlink`,
+                    "/src/plugin-one/action.ts": utils.dedent`
+                        import { actionCreatorFactory } from "typescript-fsa"; // Include version of shared lib
+                        const action = actionCreatorFactory("somekey");
+                        const featureOne = action<{ route: string }>("feature-one");
+                        export const actions = { featureOne };`,
+                    "/src/plugin-one/node_modules/typescript-fsa/package.json": fsaPackageJson,
+                    "/src/plugin-one/node_modules/typescript-fsa/index.d.ts": fsaIndex,
+                    "/src/plugin-one/node_modules/plugin-two": new vfs.Symlink("/src/plugin-two"),
+                });
+            },
+            commandLineArgs: ["-p", "src/plugin-one", "--listFiles"]
+        });
+
+        verifyTsc({
+            scenario: "declarationEmit",
+            subScenario: "when pkg references sibling package through indirect symlink",
+            fs: () => loadProjectFromFiles({
+                "/src/pkg1/dist/index.d.ts": utils.dedent`
+                        export * from './types';`,
+                "/src/pkg1/dist/types.d.ts": utils.dedent`
+                        export declare type A = {
+                            id: string;
+                        };
+                        export declare type B = {
+                            id: number;
+                        };
+                        export declare type IdType = A | B;
+                        export declare class MetadataAccessor<T, D extends IdType = IdType> {
+                            readonly key: string;
+                            private constructor();
+                            toString(): string;
+                            static create<T, D extends IdType = IdType>(key: string): MetadataAccessor<T, D>;
+                        }`,
+                "/src/pkg1/package.json": utils.dedent`
+                        {
+                            "name": "@raymondfeng/pkg1",
+                            "version": "1.0.0",
+                            "description": "",
+                            "main": "dist/index.js",
+                            "typings": "dist/index.d.ts"
+                        }`,
+                "/src/pkg2/dist/index.d.ts": utils.dedent`
+                        export * from './types';`,
+                "/src/pkg2/dist/types.d.ts": utils.dedent`
+                        export {MetadataAccessor} from '@raymondfeng/pkg1';`,
+                "/src/pkg2/package.json": utils.dedent`
+                        {
+                            "name": "@raymondfeng/pkg2",
+                            "version": "1.0.0",
+                            "description": "",
+                            "main": "dist/index.js",
+                            "typings": "dist/index.d.ts"
+                        }`,
+                "/src/pkg3/src/index.ts": utils.dedent`
+                        export * from './keys';`,
+                "/src/pkg3/src/keys.ts": utils.dedent`
+                        import {MetadataAccessor} from "@raymondfeng/pkg2";
+                        export const ADMIN = MetadataAccessor.create<boolean>('1');`,
+                "/src/pkg3/tsconfig.json": utils.dedent`
+                        {
+                            "compilerOptions": {
+                              "outDir": "dist",
+                              "rootDir": "src",
+                              "target": "es5",
+                              "module": "commonjs",
+                              "strict": true,
+                              "esModuleInterop": true,
+                              "declaration": true
+                            }
+                        }`,
+                "/src/pkg2/node_modules/@raymondfeng/pkg1": new vfs.Symlink("/src/pkg1"),
+                "/src/pkg3/node_modules/@raymondfeng/pkg2": new vfs.Symlink("/src/pkg2"),
+            }),
+            commandLineArgs: ["-p", "src/pkg3", "--listFiles"]
+        });
+    });
+}
diff --git a/tests/baselines/reference/declarationEmitReexportedSymlinkReference3.errors.txt b/tests/baselines/reference/declarationEmitReexportedSymlinkReference3.errors.txt
deleted file mode 100644
index 1981ce63c9..0000000000
--- a/tests/baselines/reference/declarationEmitReexportedSymlinkReference3.errors.txt
+++ /dev/null
@@ -1,60 +0,0 @@
-tests/cases/compiler/monorepo/pkg3/src/keys.ts(3,14): error TS2742: The inferred type of 'ADMIN' cannot be named without a reference to '../../pkg2/node_modules/@raymondfeng/pkg1/dist'. This is likely not portable. A type annotation is necessary.
-
-
-==== tests/cases/compiler/monorepo/pkg3/tsconfig.json (0 errors) ====
-    {
-        "compilerOptions": {
-          "outDir": "dist",
-          "rootDir": "src",
-          "target": "es5",
-          "module": "commonjs",
-          "strict": true,
-          "esModuleInterop": true,
-          "declaration": true
-        }
-    }
-    
-==== tests/cases/compiler/monorepo/pkg1/dist/index.d.ts (0 errors) ====
-    export * from './types';
-==== tests/cases/compiler/monorepo/pkg1/dist/types.d.ts (0 errors) ====
-    export declare type A = {
-        id: string;
-    };
-    export declare type B = {
-        id: number;
-    };
-    export declare type IdType = A | B;
-    export declare class MetadataAccessor<T, D extends IdType = IdType> {
-        readonly key: string;
-        private constructor();
-        toString(): string;
-        static create<T, D extends IdType = IdType>(key: string): MetadataAccessor<T, D>;
-    }
-==== tests/cases/compiler/monorepo/pkg1/package.json (0 errors) ====
-    {
-        "name": "@raymondfeng/pkg1",
-        "version": "1.0.0",
-        "description": "",
-        "main": "dist/index.js",
-        "typings": "dist/index.d.ts"
-    }
-==== tests/cases/compiler/monorepo/pkg2/dist/index.d.ts (0 errors) ====
-    export * from './types';
-==== tests/cases/compiler/monorepo/pkg2/dist/types.d.ts (0 errors) ====
-    export {MetadataAccessor} from '@raymondfeng/pkg1';
-==== tests/cases/compiler/monorepo/pkg2/package.json (0 errors) ====
-    {
-        "name": "@raymondfeng/pkg2",
-        "version": "1.0.0",
-        "description": "",
-        "main": "dist/index.js",
-        "typings": "dist/index.d.ts"
-    }
-==== tests/cases/compiler/monorepo/pkg3/src/index.ts (0 errors) ====
-    export * from './keys';
-==== tests/cases/compiler/monorepo/pkg3/src/keys.ts (1 errors) ====
-    import {MetadataAccessor} from "@raymondfeng/pkg2";
-    
-    export const ADMIN = MetadataAccessor.create<boolean>('1');
-                 ~~~~~
-!!! error TS2742: The inferred type of 'ADMIN' cannot be named without a reference to '../../pkg2/node_modules/@raymondfeng/pkg1/dist'. This is likely not portable. A type annotation is necessary.
\ No newline at end of file
diff --git a/tests/baselines/reference/declarationEmitReexportedSymlinkReference3.js b/tests/baselines/reference/declarationEmitReexportedSymlinkReference3.js
index 2ac5a9fffb..46b3eded63 100644
--- a/tests/baselines/reference/declarationEmitReexportedSymlinkReference3.js
+++ b/tests/baselines/reference/declarationEmitReexportedSymlinkReference3.js
@@ -57,5 +57,8 @@ Object.defineProperty(exports, "__esModule", { value: true });
 __export(require("./keys"));
 
 
+//// [keys.d.ts]
+import { MetadataAccessor } from "@raymondfeng/pkg2";
+export declare const ADMIN: MetadataAccessor<boolean, import("../../pkg1/dist").IdType>;
 //// [index.d.ts]
 export * from './keys';
diff --git a/tests/baselines/reference/tsc/declarationEmit/initial-build/when-pkg-references-sibling-package-through-indirect-symlink.js b/tests/baselines/reference/tsc/declarationEmit/initial-build/when-pkg-references-sibling-package-through-indirect-symlink.js
new file mode 100644
index 0000000000..42cb6cf78c
--- /dev/null
+++ b/tests/baselines/reference/tsc/declarationEmit/initial-build/when-pkg-references-sibling-package-through-indirect-symlink.js
@@ -0,0 +1,33 @@
+//// [/lib/initial-buildOutput.txt]
+/lib/tsc -p src/pkg3 --listFiles
+src/pkg3/src/keys.ts(2,14): error TS2742: The inferred type of 'ADMIN' cannot be named without a reference to '@raymondfeng/pkg2/node_modules/@raymondfeng/pkg1'. This is likely not portable. A type annotation is necessary.
+/lib/lib.d.ts
+/src/pkg3/node_modules/@raymondfeng/pkg2/node_modules/@raymondfeng/pkg1/dist/types.d.ts
+/src/pkg3/node_modules/@raymondfeng/pkg2/node_modules/@raymondfeng/pkg1/dist/index.d.ts
+/src/pkg3/node_modules/@raymondfeng/pkg2/dist/types.d.ts
+/src/pkg3/node_modules/@raymondfeng/pkg2/dist/index.d.ts
+/src/pkg3/src/keys.ts
+/src/pkg3/src/index.ts
+exitCode:: 1
+
+
+//// [/src/pkg3/dist/index.d.ts]
+export * from './keys';
+
+
+//// [/src/pkg3/dist/index.js]
+"use strict";
+function __export(m) {
+    for (var p in m) if (!exports.hasOwnProperty(p)) exports[p] = m[p];
+}
+Object.defineProperty(exports, "__esModule", { value: true });
+__export(require("./keys"));
+
+
+//// [/src/pkg3/dist/keys.js]
+"use strict";
+Object.defineProperty(exports, "__esModule", { value: true });
+var pkg2_1 = require("@raymondfeng/pkg2");
+exports.ADMIN = pkg2_1.MetadataAccessor.create('1');
+
+
diff --git a/tests/baselines/reference/tsc/declarationEmit/initial-build/when-same-version-is-referenced-through-source-and-another-symlinked-package.js b/tests/baselines/reference/tsc/declarationEmit/initial-build/when-same-version-is-referenced-through-source-and-another-symlinked-package.js
new file mode 100644
index 0000000000..910b9d1db3
--- /dev/null
+++ b/tests/baselines/reference/tsc/declarationEmit/initial-build/when-same-version-is-referenced-through-source-and-another-symlinked-package.js
@@ -0,0 +1,37 @@
+//// [/lib/initial-buildOutput.txt]
+/lib/tsc -p src/plugin-one --listFiles
+/lib/lib.d.ts
+/src/plugin-one/node_modules/typescript-fsa/index.d.ts
+/src/plugin-one/action.ts
+/src/plugin-one/node_modules/plugin-two/node_modules/typescript-fsa/index.d.ts -> /src/plugin-one/node_modules/typescript-fsa/index.d.ts
+/src/plugin-one/node_modules/plugin-two/index.d.ts
+/src/plugin-one/index.ts
+exitCode:: 0
+
+
+//// [/src/plugin-one/action.d.ts]
+export declare const actions: {
+    featureOne: import("typescript-fsa").ActionCreator<{
+        route: string;
+    }>;
+};
+
+
+//// [/src/plugin-one/action.js]
+"use strict";
+Object.defineProperty(exports, "__esModule", { value: true });
+var typescript_fsa_1 = require("typescript-fsa"); // Include version of shared lib
+var action = typescript_fsa_1.actionCreatorFactory("somekey");
+var featureOne = action("feature-one");
+exports.actions = { featureOne: featureOne };
+
+
+//// [/src/plugin-one/index.d.ts]
+export {};
+
+
+//// [/src/plugin-one/index.js]
+"use strict";
+Object.defineProperty(exports, "__esModule", { value: true });
+
+