diff --git a/src/cargo/ops/cargo_package/vcs.rs b/src/cargo/ops/cargo_package/vcs.rs
index 4f57c568bee..a8c89ca2470 100644
--- a/src/cargo/ops/cargo_package/vcs.rs
+++ b/src/cargo/ops/cargo_package/vcs.rs
@@ -268,8 +268,41 @@ fn dirty_files_outside_pkg_root(
         // Handle files outside package root but under git workdir,
         .filter_map(|p| paths::strip_prefix_canonical(p, workdir).ok())
     {
-        if repo.status_file(&rel_path)? != git2::Status::CURRENT {
-            dirty_files.insert(workdir.join(rel_path));
+        match repo.status_file(&rel_path) {
+            Ok(git2::Status::CURRENT) => {}
+            Ok(_) => {
+                dirty_files.insert(workdir.join(rel_path));
+            }
+            Err(e) => {
+                if e.code() == git2::ErrorCode::NotFound {
+                    // Object not found means this file might be inside a subrepo/submodule.
+                    // Let's check its status from that repo.
+                    let abs_path = workdir.join(&rel_path);
+                    if let Ok(repo) = git2::Repository::discover(&abs_path) {
+                        let is_dirty = if repo.workdir() == Some(workdir) {
+                            false
+                        } else if let Ok(path) =
+                            paths::strip_prefix_canonical(&abs_path, repo.workdir().unwrap())
+                        {
+                            repo.status_file(&path) != Ok(git2::Status::CURRENT)
+                        } else {
+                            false
+                        };
+                        if is_dirty {
+                            dirty_files.insert(abs_path);
+                        }
+                    }
+                }
+
+                // Dirtiness check for symlinks is mostly informational.
+                // To avoid adding more complicated logic,
+                // for now we ignore the status check failure.
+                debug!(
+                    "failed to get status from file `{}` in git repo at `{}`: {e}",
+                    rel_path.display(),
+                    workdir.display()
+                );
+            }
         }
     }
     Ok(dirty_files)
diff --git a/tests/testsuite/package.rs b/tests/testsuite/package.rs
index 54d087747da..9e285299e81 100644
--- a/tests/testsuite/package.rs
+++ b/tests/testsuite/package.rs
@@ -1425,6 +1425,59 @@ edition = "2021"
     );
 }
 
+#[cargo_test]
+fn dirty_file_outside_pkg_root_inside_submodule() {
+    if !symlink_supported() {
+        return;
+    }
+    let (p, repo) = git::new_repo("foo", |p| {
+        p.file(
+            "Cargo.toml",
+            r#"
+                [workspace]
+                members = ["isengard"]
+                resolver = "2"
+            "#,
+        )
+        .file(
+            "isengard/Cargo.toml",
+            r#"
+                [package]
+                name = "isengard"
+                edition = "2015"
+                homepage = "saruman"
+                description = "saruman"
+                license = "ISC"
+            "#,
+        )
+        .file("isengard/src/lib.rs", "")
+    });
+    let submodule = git::new("submodule", |p| {
+        p.no_manifest().file("file.txt", "from-submodule")
+    });
+    git::add_submodule(
+        &repo,
+        &submodule.root().to_url().to_string(),
+        Path::new("submodule"),
+    );
+    p.symlink("submodule/file.txt", "isengard/src/file.txt");
+    git::add(&repo);
+    git::commit(&repo);
+    p.change_file("submodule/file.txt", "changed");
+
+    p.cargo("package --workspace --no-verify")
+        .with_status(101)
+        .with_stderr_data(str![[r#"
+[ERROR] 1 files in the working directory contain changes that were not yet committed into git:
+
+submodule/file.txt
+
+to proceed despite this and include the uncommitted changes, pass the `--allow-dirty` flag
+
+"#]])
+        .run();
+}
+
 #[cargo_test]
 fn issue_13695_allow_dirty_vcs_info() {
     let p = project()