diff --git a/its/core-it-suite/src/test/java/org/apache/maven/it/IntegrationTestSuite.java b/its/core-it-suite/src/test/java/org/apache/maven/it/IntegrationTestSuite.java
index 7288bcc20f..2564b1f751 100644
--- a/its/core-it-suite/src/test/java/org/apache/maven/it/IntegrationTestSuite.java
+++ b/its/core-it-suite/src/test/java/org/apache/maven/it/IntegrationTestSuite.java
@@ -91,6 +91,7 @@ public class IntegrationTestSuite
         // suite.addTestSuite( MavenIT0109ReleaseUpdateTest.class );
         // suite.addTestSuite( MavenIT0108SnapshotUpdateTest.class ); -- MNG-3137
 
+        suite.addTestSuite( MavenITmng4203TransitiveDependencyExclusionTest.class );
         suite.addTestSuite( MavenITmng4199CompileMeetsRuntimeScopeTest.class );
         suite.addTestSuite( MavenITmng4196ExclusionOnPluginDepTest.class );
         suite.addTestSuite( MavenITmng4193UniqueRepoIdTest.class );
diff --git a/its/core-it-suite/src/test/java/org/apache/maven/it/MavenITmng4203TransitiveDependencyExclusionTest.java b/its/core-it-suite/src/test/java/org/apache/maven/it/MavenITmng4203TransitiveDependencyExclusionTest.java
new file mode 100644
index 0000000000..efc7d95dd3
--- /dev/null
+++ b/its/core-it-suite/src/test/java/org/apache/maven/it/MavenITmng4203TransitiveDependencyExclusionTest.java
@@ -0,0 +1,76 @@
+package org.apache.maven.it;
+
+/*
+ * Licensed to the Apache Software Foundation (ASF) under one
+ * or more contributor license agreements.  See the NOTICE file
+ * distributed with this work for additional information
+ * regarding copyright ownership.  The ASF licenses this file
+ * to you under the Apache License, Version 2.0 (the
+ * "License"); you may not use this file except in compliance
+ * with the License.  You may obtain a copy of the License at
+ *
+ *   http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing,
+ * software distributed under the License is distributed on an
+ * "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+ * KIND, either express or implied.  See the License for the
+ * specific language governing permissions and limitations
+ * under the License.
+ */
+
+import org.apache.maven.it.Verifier;
+import org.apache.maven.it.util.ResourceExtractor;
+
+import java.io.File;
+import java.util.ArrayList;
+import java.util.Collections;
+import java.util.List;
+
+/**
+ * This is a test set for <a href="http://jira.codehaus.org/browse/MNG-4203">MNG-4203</a>.
+ * 
+ * @author Benjamin Bentmann
+ */
+public class MavenITmng4203TransitiveDependencyExclusionTest
+    extends AbstractMavenIntegrationTestCase
+{
+
+    public MavenITmng4203TransitiveDependencyExclusionTest()
+    {
+        super( ALL_MAVEN_VERSIONS );
+    }
+
+    /**
+     * Test that exclusions defined on a dependency apply to its transitive dependencies as well.
+     */
+    public void testit()
+        throws Exception
+    {
+        File testDir = ResourceExtractor.simpleExtractResources( getClass(), "/mng-4203" );
+
+        Verifier verifier = new Verifier( testDir.getAbsolutePath() );
+        verifier.setAutoclean( false );
+        verifier.deleteDirectory( "target" );
+        verifier.deleteArtifacts( "org.apache.maven.its.mng4203" );
+        verifier.filterFile( "settings-template.xml", "settings.xml", "UTF-8", verifier.newDefaultFilterProperties() );
+        verifier.getCliOptions().add( "-s" );
+        verifier.getCliOptions().add( "settings.xml" );
+        verifier.executeGoal( "validate" );
+        verifier.verifyErrorFreeLog();
+        verifier.resetStreams();
+
+        List artifacts = verifier.loadLines( "target/artifacts.txt", "UTF-8" );
+        Collections.sort( artifacts );
+
+        List expected = new ArrayList();
+        expected.add( "org.apache.maven.its.mng4203:b:jar:0.1" );
+        expected.add( "org.apache.maven.its.mng4203:c:jar:0.1" );
+
+        assertEquals( expected, artifacts );
+
+        verifier.assertArtifactNotPresent( "org.apache.maven.its.mng4203", "a", "0.1", "pom" );
+        verifier.assertArtifactNotPresent( "org.apache.maven.its.mng4203", "a", "0.1", "jar" );
+    }
+
+}
diff --git a/its/core-it-suite/src/test/resources/mng-4203/pom.xml b/its/core-it-suite/src/test/resources/mng-4203/pom.xml
new file mode 100644
index 0000000000..13f987c15b
--- /dev/null
+++ b/its/core-it-suite/src/test/resources/mng-4203/pom.xml
@@ -0,0 +1,72 @@
+<?xml version="1.0" encoding="UTF-8"?>
+
+<!--
+Licensed to the Apache Software Foundation (ASF) under one
+or more contributor license agreements.  See the NOTICE file
+distributed with this work for additional information
+regarding copyright ownership.  The ASF licenses this file
+to you under the Apache License, Version 2.0 (the
+"License"); you may not use this file except in compliance
+with the License.  You may obtain a copy of the License at
+
+  http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing,
+software distributed under the License is distributed on an
+"AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+KIND, either express or implied.  See the License for the
+specific language governing permissions and limitations
+under the License.
+-->
+
+<project>
+  <modelVersion>4.0.0</modelVersion>
+
+  <groupId>org.apache.maven.its.mng4203</groupId>
+  <artifactId>test</artifactId>
+  <version>0.1</version>
+
+  <name>Maven Integration Test :: MNG-4203</name>
+  <description>
+    Test that exclusions defined on a dependency apply to its transitive dependencies as well.
+  </description>
+
+  <dependencies>
+    <dependency>
+      <groupId>org.apache.maven.its.mng4203</groupId>
+      <artifactId>c</artifactId>
+      <version>0.1</version>
+      <exclusions>
+        <exclusion>
+          <!--
+          This is actually a dependency of artifact b but this exclusion should still apply down there.
+          -->
+          <groupId>org.apache.maven.its.mng4203</groupId>
+          <artifactId>a</artifactId>
+        </exclusion>
+      </exclusions>
+    </dependency>
+  </dependencies>
+
+  <build>
+    <plugins>
+      <plugin>
+        <groupId>org.apache.maven.its.plugins</groupId>
+        <artifactId>maven-it-plugin-dependency-resolution</artifactId>
+        <version>2.1-SNAPSHOT</version>
+        <executions>
+          <execution>
+            <id>test</id>
+            <phase>validate</phase>
+            <configuration>
+              <projectArtifacts>target/artifacts.txt</projectArtifacts>
+            </configuration>
+            <goals>
+              <goal>test</goal>
+            </goals>
+          </execution>
+        </executions>
+      </plugin>
+    </plugins>
+  </build>
+</project>
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/0.1/a-0.1.jar b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/0.1/a-0.1.jar
new file mode 100644
index 0000000000..70f769b0b0
Binary files /dev/null and b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/0.1/a-0.1.jar differ
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/0.1/a-0.1.pom b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/0.1/a-0.1.pom
new file mode 100644
index 0000000000..7f1da477bc
--- /dev/null
+++ b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/0.1/a-0.1.pom
@@ -0,0 +1,36 @@
+<?xml version="1.0" encoding="UTF-8"?>
+
+<!--
+Licensed to the Apache Software Foundation (ASF) under one
+or more contributor license agreements.  See the NOTICE file
+distributed with this work for additional information
+regarding copyright ownership.  The ASF licenses this file
+to you under the Apache License, Version 2.0 (the
+"License"); you may not use this file except in compliance
+with the License.  You may obtain a copy of the License at
+
+  http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing,
+software distributed under the License is distributed on an
+"AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+KIND, either express or implied.  See the License for the
+specific language governing permissions and limitations
+under the License.
+-->
+
+<project>
+  <modelVersion>4.0.0</modelVersion>
+
+  <groupId>org.apache.maven.its.mng4203</groupId>
+  <artifactId>a</artifactId>
+  <version>0.1</version>
+  <packaging>jar</packaging>
+
+  <distributionManagement>
+    <repository>
+      <id>maven-core-it</id>
+      <url>file:///${basedir}/repo</url>
+    </repository>
+  </distributionManagement>
+</project>
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/maven-metadata.xml b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/maven-metadata.xml
new file mode 100644
index 0000000000..a31e266134
--- /dev/null
+++ b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/a/maven-metadata.xml
@@ -0,0 +1,13 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<metadata xsi:schemaLocation="http://maven.apache.org/METADATA/1.0.0 http://maven.apache.org/xsd/metadata-1.0.0.xsd" xmlns="http://maven.apache.org/METADATA/1.0.0"
+    xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance">
+  <groupId>org.apache.maven.its.mng4203</groupId>
+  <artifactId>a</artifactId>
+  <version>0.1</version>
+  <versioning>
+    <versions>
+      <version>0.1</version>
+    </versions>
+    <lastUpdated>20090616192508</lastUpdated>
+  </versioning>
+</metadata>
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/0.1/b-0.1.jar b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/0.1/b-0.1.jar
new file mode 100644
index 0000000000..f9c20340d5
Binary files /dev/null and b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/0.1/b-0.1.jar differ
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/0.1/b-0.1.pom b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/0.1/b-0.1.pom
new file mode 100644
index 0000000000..404a37f713
--- /dev/null
+++ b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/0.1/b-0.1.pom
@@ -0,0 +1,44 @@
+<?xml version="1.0" encoding="UTF-8"?>
+
+<!--
+Licensed to the Apache Software Foundation (ASF) under one
+or more contributor license agreements.  See the NOTICE file
+distributed with this work for additional information
+regarding copyright ownership.  The ASF licenses this file
+to you under the Apache License, Version 2.0 (the
+"License"); you may not use this file except in compliance
+with the License.  You may obtain a copy of the License at
+
+  http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing,
+software distributed under the License is distributed on an
+"AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+KIND, either express or implied.  See the License for the
+specific language governing permissions and limitations
+under the License.
+-->
+
+<project>
+  <modelVersion>4.0.0</modelVersion>
+
+  <groupId>org.apache.maven.its.mng4203</groupId>
+  <artifactId>b</artifactId>
+  <version>0.1</version>
+  <packaging>jar</packaging>
+
+  <distributionManagement>
+    <repository>
+      <id>maven-core-it</id>
+      <url>file:///${basedir}/repo</url>
+    </repository>
+  </distributionManagement>
+
+  <dependencies>
+    <dependency>
+      <groupId>org.apache.maven.its.mng4203</groupId>
+      <artifactId>a</artifactId>
+      <version>0.1</version>
+    </dependency>
+  </dependencies>
+</project>
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/maven-metadata.xml b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/maven-metadata.xml
new file mode 100644
index 0000000000..dab0a47451
--- /dev/null
+++ b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/b/maven-metadata.xml
@@ -0,0 +1,13 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<metadata xsi:schemaLocation="http://maven.apache.org/METADATA/1.0.0 http://maven.apache.org/xsd/metadata-1.0.0.xsd" xmlns="http://maven.apache.org/METADATA/1.0.0"
+    xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance">
+  <groupId>org.apache.maven.its.mng4203</groupId>
+  <artifactId>b</artifactId>
+  <version>0.1</version>
+  <versioning>
+    <versions>
+      <version>0.1</version>
+    </versions>
+    <lastUpdated>20090616192638</lastUpdated>
+  </versioning>
+</metadata>
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/0.1/c-0.1.jar b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/0.1/c-0.1.jar
new file mode 100644
index 0000000000..835f7a1108
Binary files /dev/null and b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/0.1/c-0.1.jar differ
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/0.1/c-0.1.pom b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/0.1/c-0.1.pom
new file mode 100644
index 0000000000..df614b7df0
--- /dev/null
+++ b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/0.1/c-0.1.pom
@@ -0,0 +1,44 @@
+<?xml version="1.0" encoding="UTF-8"?>
+
+<!--
+Licensed to the Apache Software Foundation (ASF) under one
+or more contributor license agreements.  See the NOTICE file
+distributed with this work for additional information
+regarding copyright ownership.  The ASF licenses this file
+to you under the Apache License, Version 2.0 (the
+"License"); you may not use this file except in compliance
+with the License.  You may obtain a copy of the License at
+
+  http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing,
+software distributed under the License is distributed on an
+"AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+KIND, either express or implied.  See the License for the
+specific language governing permissions and limitations
+under the License.
+-->
+
+<project>
+  <modelVersion>4.0.0</modelVersion>
+
+  <groupId>org.apache.maven.its.mng4203</groupId>
+  <artifactId>c</artifactId>
+  <version>0.1</version>
+  <packaging>jar</packaging>
+
+  <distributionManagement>
+    <repository>
+      <id>maven-core-it</id>
+      <url>file:///${basedir}/repo</url>
+    </repository>
+  </distributionManagement>
+
+  <dependencies>
+    <dependency>
+      <groupId>org.apache.maven.its.mng4203</groupId>
+      <artifactId>b</artifactId>
+      <version>0.1</version>
+    </dependency>
+  </dependencies>
+</project>
diff --git a/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/maven-metadata.xml b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/maven-metadata.xml
new file mode 100644
index 0000000000..6a94969db9
--- /dev/null
+++ b/its/core-it-suite/src/test/resources/mng-4203/repo/org/apache/maven/its/mng4203/c/maven-metadata.xml
@@ -0,0 +1,13 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<metadata xsi:schemaLocation="http://maven.apache.org/METADATA/1.0.0 http://maven.apache.org/xsd/metadata-1.0.0.xsd" xmlns="http://maven.apache.org/METADATA/1.0.0"
+    xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance">
+  <groupId>org.apache.maven.its.mng4203</groupId>
+  <artifactId>c</artifactId>
+  <version>0.1</version>
+  <versioning>
+    <versions>
+      <version>0.1</version>
+    </versions>
+    <lastUpdated>20090616192658</lastUpdated>
+  </versioning>
+</metadata>
diff --git a/its/core-it-suite/src/test/resources/mng-4203/settings-template.xml b/its/core-it-suite/src/test/resources/mng-4203/settings-template.xml
new file mode 100644
index 0000000000..cde4215860
--- /dev/null
+++ b/its/core-it-suite/src/test/resources/mng-4203/settings-template.xml
@@ -0,0 +1,55 @@
+<?xml version="1.0" encoding="UTF-8"?>
+
+<!--
+Licensed to the Apache Software Foundation (ASF) under one
+or more contributor license agreements.  See the NOTICE file
+distributed with this work for additional information
+regarding copyright ownership.  The ASF licenses this file
+to you under the Apache License, Version 2.0 (the
+"License"); you may not use this file except in compliance
+with the License.  You may obtain a copy of the License at
+
+  http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing,
+software distributed under the License is distributed on an
+"AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+KIND, either express or implied.  See the License for the
+specific language governing permissions and limitations
+under the License.
+-->
+
+<settings>
+  <profiles>
+    <profile>
+      <id>maven-core-it-repo</id>
+      <repositories>
+        <repository>
+          <id>maven-core-it</id>
+          <url>@baseurl@/repo</url>
+          <releases>
+            <checksumPolicy>ignore</checksumPolicy>
+          </releases>
+          <snapshots>
+            <enabled>false</enabled>
+          </snapshots>
+        </repository>
+      </repositories>
+      <pluginRepositories>
+        <pluginRepository>
+          <id>maven-core-it</id>
+          <url>@baseurl@/repo</url>
+          <releases>
+            <checksumPolicy>ignore</checksumPolicy>
+          </releases>
+          <snapshots>
+            <enabled>false</enabled>
+          </snapshots>
+        </pluginRepository>
+      </pluginRepositories>
+    </profile>
+  </profiles>
+  <activeProfiles>
+    <activeProfile>maven-core-it-repo</activeProfile>
+  </activeProfiles>
+</settings>