diff --git a/src/compiler/builder.ts b/src/compiler/builder.ts
index ff372479fa..198bf0556f 100644
--- a/src/compiler/builder.ts
+++ b/src/compiler/builder.ts
@@ -13,7 +13,7 @@ namespace ts {
         /**
          * State corresponding to all the file references and shapes of the module etc
          */
-        const state = createBuilderState({
+        const state = createBuilderStateOld({
             useCaseSensitiveFileNames: host.useCaseSensitiveFileNames(),
             createHash: host.createHash,
             onUpdateProgramInitialized,
diff --git a/src/compiler/builderState.ts b/src/compiler/builderState.ts
index eb3887eed1..0cd55ebd61 100644
--- a/src/compiler/builderState.ts
+++ b/src/compiler/builderState.ts
@@ -136,7 +136,7 @@ namespace ts {
         onSourceFileRemoved(path: Path): void;
     }
 
-    export interface BuilderState {
+    export interface BuilderStateOld {
         /**
          * Updates the program in the builder to represent new state
          */
@@ -156,7 +156,65 @@ namespace ts {
         getAllDependencies(programOfThisState: Program, sourceFile: SourceFile): ReadonlyArray<string>;
     }
 
-    export function createBuilderState(host: BuilderStateHost): BuilderState {
+    export interface BuilderState {
+        /**
+         * Information of the file eg. its version, signature etc
+         */
+        fileInfos: Map<FileInfo>;
+        /**
+         * Contains the map of ReferencedSet=Referenced files of the file if module emit is enabled
+         * Otherwise undefined
+         * Thus non undefined value indicates, module emit
+         */
+        readonly referencedMap: ReadonlyMap<ReferencedSet> | undefined;
+        /**
+         * Map of files that have already called update signature.
+         * That means hence forth these files are assumed to have
+         * no change in their signature for this version of the program
+         */
+        hasCalledUpdateShapeSignature: Map<true>;
+        /**
+         * Cache of all files excluding default library file for the current program
+         */
+        allFilesExcludingDefaultLibraryFile: ReadonlyArray<SourceFile> | undefined;
+        /**
+         * Cache of all the file names
+         */
+        allFileNames: ReadonlyArray<string> | undefined;
+    }
+
+    export function createBuilderState(newProgram: Program, getCanonicalFileName: GetCanonicalFileName, oldState?: BuilderState): BuilderState {
+        const fileInfos = createMap<FileInfo>();
+        const referencedMap = newProgram.getCompilerOptions().module !== ModuleKind.None ? createMap<ReferencedSet>() : undefined;
+        const hasCalledUpdateShapeSignature = createMap<true>();
+        const useOldState = oldState && !!oldState.referencedMap !== !!referencedMap;
+
+        // Create the reference map, and set the file infos
+        for (const sourceFile of newProgram.getSourceFiles()) {
+            const version = sourceFile.version;
+            const oldInfo = useOldState && oldState.fileInfos.get(sourceFile.path);
+            if (referencedMap) {
+                const newReferences = getReferencedFiles(newProgram, sourceFile, getCanonicalFileName);
+                if (newReferences) {
+                    referencedMap.set(sourceFile.path, newReferences);
+                }
+            }
+            fileInfos.set(sourceFile.path, { version, signature: oldInfo && oldInfo.signature });
+        }
+
+        oldState = undefined;
+        newProgram = undefined;
+
+        return {
+            fileInfos,
+            referencedMap,
+            hasCalledUpdateShapeSignature,
+            allFilesExcludingDefaultLibraryFile: undefined,
+            allFileNames: undefined
+        };
+    }
+
+    export function createBuilderStateOld(host: BuilderStateHost): BuilderStateOld {
         /**
          * Create the canonical file name for identity
          */
@@ -171,11 +229,6 @@ namespace ts {
          */
         const fileInfos = createMap<FileInfo>();
 
-        /**
-         * true if module emit is enabled
-         */
-        let isModuleEmit: boolean;
-
         /**
          * Contains the map of ReferencedSet=Referenced files of the file if module emit is enabled
          * Otherwise undefined
@@ -218,7 +271,7 @@ namespace ts {
         function updateProgram(newProgram: Program) {
             const newProgramHasModuleEmit = newProgram.getCompilerOptions().module !== ModuleKind.None;
             const oldReferencedMap = referencedMap;
-            const isModuleEmitChanged = isModuleEmit !== newProgramHasModuleEmit;
+            const isModuleEmitChanged = !!referencedMap !== newProgramHasModuleEmit;
             if (isModuleEmitChanged) {
                 // Changes in the module emit, clear out everything and initialize as if first time
 
@@ -229,8 +282,7 @@ namespace ts {
                 referencedMap = newProgramHasModuleEmit ? createMap<ReferencedSet>() : undefined;
 
                 // Update the module emit
-                isModuleEmit = newProgramHasModuleEmit;
-                getEmitDependentFilesAffectedBy = isModuleEmit ?
+                getEmitDependentFilesAffectedBy = newProgramHasModuleEmit ?
                     getFilesAffectedByUpdatedShapeWhenModuleEmit :
                     getFilesAffectedByUpdatedShapeWhenNonModuleEmit;
             }
@@ -326,12 +378,11 @@ namespace ts {
             }
 
             // If this is non module emit, or its a global file, it depends on all the source files
-            if (!isModuleEmit || (!isExternalModule(sourceFile) && !containsOnlyAmbientModules(sourceFile))) {
+            if (!referencedMap || (!isExternalModule(sourceFile) && !containsOnlyAmbientModules(sourceFile))) {
                 return getAllFileNames(programOfThisState);
             }
 
             // Get the references, traversing deep from the referenceMap
-            Debug.assert(!!referencedMap);
             const seenMap = createMap<true>();
             const queue = [sourceFile.path];
             while (queue.length) {
@@ -497,3 +548,177 @@ namespace ts {
         }
     }
 }
+
+/*@internal*/
+namespace ts.BuilderState {
+    type ComputeHash = (data: string) => string;
+
+    /**
+     * Gets the files affected by the path from the program
+     */
+    export function getFilesAffectedBy(state: BuilderState, programOfThisState: Program, path: Path, cancellationToken: CancellationToken | undefined, computeHash?: ComputeHash, cacheToUpdateSignature?: Map<string>): ReadonlyArray<SourceFile> {
+        // Since the operation could be cancelled, the signatures are always stored in the cache
+        // They will be commited once it is safe to use them
+        // eg when calling this api from tsserver, if there is no cancellation of the operation
+        // In the other cases the affected files signatures are commited only after the iteration through the result is complete
+        const signatureCache = cacheToUpdateSignature || createMap();
+        const sourceFile = programOfThisState.getSourceFileByPath(path);
+        if (!sourceFile) {
+            return emptyArray;
+        }
+
+        if (!updateShapeSignature(state, programOfThisState, sourceFile, signatureCache, cancellationToken, computeHash)) {
+            return [sourceFile];
+        }
+
+        const result = (state.referencedMap ? getFilesAffectedByUpdatedShapeWhenModuleEmit : getFilesAffectedByUpdatedShapeWhenNonModuleEmit)(state, programOfThisState, sourceFile, signatureCache, cancellationToken, computeHash);
+        if (!cacheToUpdateSignature) {
+            // Commit all the signatures in the signature cache
+            updateSignaturesFromCache(state, signatureCache);
+        }
+        return result;
+    }
+
+    /**
+     * Updates the signatures from the cache into state's fileinfo signatures
+     * This should be called whenever it is safe to commit the state of the builder
+     */
+    export function updateSignaturesFromCache(state: BuilderState, signatureCache: Map<string>) {
+        signatureCache.forEach((signature, path) => {
+            state.fileInfos.get(path).signature = signature;
+            state.hasCalledUpdateShapeSignature.set(path, true);
+        });
+    }
+
+    /**
+     * Returns if the shape of the signature has changed since last emit
+     */
+    function updateShapeSignature(state: Readonly<BuilderState>, programOfThisState: Program, sourceFile: SourceFile, cacheToUpdateSignature: Map<string>, cancellationToken: CancellationToken | undefined, computeHash: ComputeHash | undefined) {
+        Debug.assert(!!sourceFile);
+
+        // If we have cached the result for this file, that means hence forth we should assume file shape is uptodate
+        if (state.hasCalledUpdateShapeSignature.has(sourceFile.path) || cacheToUpdateSignature.has(sourceFile.path)) {
+            return false;
+        }
+
+        const info = state.fileInfos.get(sourceFile.path);
+        Debug.assert(!!info);
+
+        const prevSignature = info.signature;
+        let latestSignature: string;
+        if (sourceFile.isDeclarationFile) {
+            latestSignature = sourceFile.version;
+        }
+        else {
+            const emitOutput = getFileEmitOutput(programOfThisState, sourceFile, /*emitOnlyDtsFiles*/ true, cancellationToken);
+            if (emitOutput.outputFiles && emitOutput.outputFiles.length > 0) {
+                latestSignature = (computeHash || identity)(emitOutput.outputFiles[0].text);
+            }
+            else {
+                latestSignature = prevSignature;
+            }
+        }
+        cacheToUpdateSignature.set(sourceFile.path, latestSignature);
+
+        return !prevSignature || latestSignature !== prevSignature;
+    }
+
+    /**
+     * Gets the files referenced by the the file path
+     */
+    function getReferencedByPaths(state: Readonly<BuilderState>, referencedFilePath: Path) {
+        return mapDefinedIter(state.referencedMap.entries(), ([filePath, referencesInFile]) =>
+            referencesInFile.has(referencedFilePath) ? filePath as Path : undefined
+        );
+    }
+
+    /**
+     * For script files that contains only ambient external modules, although they are not actually external module files,
+     * they can only be consumed via importing elements from them. Regular script files cannot consume them. Therefore,
+     * there are no point to rebuild all script files if these special files have changed. However, if any statement
+     * in the file is not ambient external module, we treat it as a regular script file.
+     */
+    function containsOnlyAmbientModules(sourceFile: SourceFile) {
+        for (const statement of sourceFile.statements) {
+            if (!isModuleWithStringLiteralName(statement)) {
+                return false;
+            }
+        }
+        return true;
+    }
+
+    /**
+     * Gets all files of the program excluding the default library file
+     */
+    function getAllFilesExcludingDefaultLibraryFile(state: BuilderState, programOfThisState: Program, firstSourceFile: SourceFile): ReadonlyArray<SourceFile> {
+        // Use cached result
+        if (state.allFilesExcludingDefaultLibraryFile) {
+            return state.allFilesExcludingDefaultLibraryFile;
+        }
+
+        let result: SourceFile[];
+        addSourceFile(firstSourceFile);
+        for (const sourceFile of programOfThisState.getSourceFiles()) {
+            if (sourceFile !== firstSourceFile) {
+                addSourceFile(sourceFile);
+            }
+        }
+        state.allFilesExcludingDefaultLibraryFile = result || emptyArray;
+        return state.allFilesExcludingDefaultLibraryFile;
+
+        function addSourceFile(sourceFile: SourceFile) {
+            if (!programOfThisState.isSourceFileDefaultLibrary(sourceFile)) {
+                (result || (result = [])).push(sourceFile);
+            }
+        }
+    }
+
+    /**
+     * When program emits non modular code, gets the files affected by the sourceFile whose shape has changed
+     */
+    function getFilesAffectedByUpdatedShapeWhenNonModuleEmit(state: BuilderState, programOfThisState: Program, sourceFileWithUpdatedShape: SourceFile) {
+        const compilerOptions = programOfThisState.getCompilerOptions();
+        // If `--out` or `--outFile` is specified, any new emit will result in re-emitting the entire project,
+        // so returning the file itself is good enough.
+        if (compilerOptions && (compilerOptions.out || compilerOptions.outFile)) {
+            return [sourceFileWithUpdatedShape];
+        }
+        return getAllFilesExcludingDefaultLibraryFile(state, programOfThisState, sourceFileWithUpdatedShape);
+    }
+
+    /**
+     * When program emits modular code, gets the files affected by the sourceFile whose shape has changed
+     */
+    function getFilesAffectedByUpdatedShapeWhenModuleEmit(state: BuilderState, programOfThisState: Program, sourceFileWithUpdatedShape: SourceFile, cacheToUpdateSignature: Map<string>, cancellationToken: CancellationToken | undefined, computeHash: ComputeHash | undefined) {
+        if (!isExternalModule(sourceFileWithUpdatedShape) && !containsOnlyAmbientModules(sourceFileWithUpdatedShape)) {
+            return getAllFilesExcludingDefaultLibraryFile(state, programOfThisState, sourceFileWithUpdatedShape);
+        }
+
+        const compilerOptions = programOfThisState.getCompilerOptions();
+        if (compilerOptions && (compilerOptions.isolatedModules || compilerOptions.out || compilerOptions.outFile)) {
+            return [sourceFileWithUpdatedShape];
+        }
+
+        // Now we need to if each file in the referencedBy list has a shape change as well.
+        // Because if so, its own referencedBy files need to be saved as well to make the
+        // emitting result consistent with files on disk.
+        const seenFileNamesMap = createMap<SourceFile>();
+
+        // Start with the paths this file was referenced by
+        seenFileNamesMap.set(sourceFileWithUpdatedShape.path, sourceFileWithUpdatedShape);
+        const queue = getReferencedByPaths(state, sourceFileWithUpdatedShape.path);
+        while (queue.length > 0) {
+            const currentPath = queue.pop();
+            if (!seenFileNamesMap.has(currentPath)) {
+                const currentSourceFile = programOfThisState.getSourceFileByPath(currentPath);
+                seenFileNamesMap.set(currentPath, currentSourceFile);
+                if (currentSourceFile && updateShapeSignature(state, programOfThisState, currentSourceFile, cacheToUpdateSignature, cancellationToken, computeHash)) {
+                    queue.push(...getReferencedByPaths(state, currentPath));
+                }
+            }
+        }
+
+        // Return array of values that needs emit
+        return flatMapIter(seenFileNamesMap.values(), value => value);
+    }
+}
diff --git a/src/server/project.ts b/src/server/project.ts
index a5542cb89e..95c41eaaf4 100644
--- a/src/server/project.ts
+++ b/src/server/project.ts
@@ -139,7 +139,7 @@ namespace ts.server {
         /*@internal*/
         resolutionCache: ResolutionCache;
 
-        private builder: BuilderState | undefined;
+        private builderState: BuilderState | undefined;
         /**
          * Set of files names that were updated since the last call to getChangesSinceVersion.
          */
@@ -460,18 +460,8 @@ namespace ts.server {
                 return [];
             }
             this.updateGraph();
-            if (!this.builder) {
-                this.builder = createBuilderState({
-                    useCaseSensitiveFileNames: this.useCaseSensitiveFileNames(),
-                    createHash: data => this.projectService.host.createHash(data),
-                    onUpdateProgramInitialized: noop,
-                    onSourceFileAdd: noop,
-                    onSourceFileChanged: noop,
-                    onSourceFileRemoved: noop
-                });
-            }
-            this.builder.updateProgram(this.program);
-            return mapDefined(this.builder.getFilesAffectedBy(this.program, scriptInfo.path, this.cancellationToken),
+            this.builderState = createBuilderState(this.program, this.projectService.toCanonicalFileName, this.builderState);
+            return mapDefined(BuilderState.getFilesAffectedBy(this.builderState, this.program, scriptInfo.path, this.cancellationToken, data => this.projectService.host.createHash(data)),
                 sourceFile => this.shouldEmitFile(this.projectService.getScriptInfoForPath(sourceFile.path)) ? sourceFile.fileName : undefined);
         }
 
@@ -507,7 +497,7 @@ namespace ts.server {
             }
             this.languageService.cleanupSemanticCache();
             this.languageServiceEnabled = false;
-            this.builder = undefined;
+            this.builderState = undefined;
             this.resolutionCache.closeTypeRootsWatch();
             this.projectService.onUpdateLanguageServiceStateForProject(this, /*languageServiceEnabled*/ false);
         }
@@ -548,7 +538,7 @@ namespace ts.server {
             this.rootFilesMap = undefined;
             this.externalFiles = undefined;
             this.program = undefined;
-            this.builder = undefined;
+            this.builderState = undefined;
             this.resolutionCache.clear();
             this.resolutionCache = undefined;
             this.cachedUnresolvedImportsPerFile = undefined;