diff --git a/dir.c b/dir.c
index 842d66af4f430e..858a8c72b08332 100644
--- a/dir.c
+++ b/dir.c
@@ -1393,7 +1393,7 @@ static enum path_treatment treat_directory(struct dir_struct *dir,
 		if (!(dir->flags & DIR_NO_GITLINKS)) {
 			struct object_id oid;
 			if (resolve_gitlink_ref(dirname, "HEAD", &oid) == 0)
-				return path_untracked;
+				return exclude ? path_excluded : path_untracked;
 		}
 		return path_recurse;
 	}
diff --git a/t/t7061-wtstatus-ignore.sh b/t/t7061-wtstatus-ignore.sh
index fc6013ba3c83aa..8c849a4cd2f082 100755
--- a/t/t7061-wtstatus-ignore.sh
+++ b/t/t7061-wtstatus-ignore.sh
@@ -272,4 +272,18 @@ test_expect_success 'status ignored tracked directory with uncommitted file in t
 	test_cmp expected actual
 '
 
+cat >expected <<\EOF
+!! tracked/submodule/
+EOF
+
+test_expect_success 'status ignores submodule in excluded directory' '
+	git init tracked/submodule &&
+	(
+		cd tracked/submodule &&
+		test_commit initial
+	) &&
+	git status --porcelain --ignored -u tracked/submodule >actual &&
+	test_cmp expected actual
+'
+
 test_done