diff --git a/docs/src/test-api/class-testconfig.md b/docs/src/test-api/class-testconfig.md
index 1555a7a0b7..89a16f1a10 100644
--- a/docs/src/test-api/class-testconfig.md
+++ b/docs/src/test-api/class-testconfig.md
@@ -17,6 +17,25 @@ export default defineConfig({
 });
 ```
 
+## property: TestConfig.build
+* since: v1.35
+- type: ?<[Object]>
+  - `external` ?<[Array]<[string]>> Paths to exclude from the transpilation expressed as glob patterns. Typically heavy JS bundles your tests reference.
+
+Transpiler configuration.
+
+**Usage**
+
+```js title="playwright.config.ts"
+import { defineConfig } from '@playwright/test';
+
+export default defineConfig({
+  build: {
+    external: '**/*bundle.js',
+  },
+});
+```
+
 ## property: TestConfig.expect
 * since: v1.10
 - type: ?<[Object]>
diff --git a/packages/playwright-ct-core/index.d.ts b/packages/playwright-ct-core/index.d.ts
new file mode 100644
index 0000000000..e7717c9b68
--- /dev/null
+++ b/packages/playwright-ct-core/index.d.ts
@@ -0,0 +1,66 @@
+/**
+ * Copyright (c) Microsoft Corporation.
+ *
+ * Licensed 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 type {
+  TestType,
+  PlaywrightTestArgs,
+  PlaywrightTestConfig as BasePlaywrightTestConfig,
+  PlaywrightTestOptions,
+  PlaywrightWorkerArgs,
+  PlaywrightWorkerOptions,
+  Locator,
+} from '@playwright/test';
+import type { JsonObject } from '@playwright/experimental-ct-core/types/component';
+import type { InlineConfig } from 'vite';
+
+export type PlaywrightTestConfig<T = {}, W = {}> = Omit<BasePlaywrightTestConfig<T, W>, 'use'> & {
+  use?: BasePlaywrightTestConfig<T, W>['use'] & {
+    ctPort?: number;
+    ctTemplateDir?: string;
+    ctCacheDir?: string;
+    ctViteConfig?: InlineConfig | (() => Promise<InlineConfig>);
+  };
+};
+
+export interface MountOptions<HooksConfig extends JsonObject> {
+  hooksConfig?: HooksConfig;
+}
+
+interface MountResult extends Locator {
+  unmount(): Promise<void>;
+  update(component: JSX.Element): Promise<void>;
+}
+
+export interface ComponentFixtures {
+  mount<HooksConfig extends JsonObject>(
+    component: JSX.Element,
+    options?: MountOptions<HooksConfig>
+  ): Promise<MountResult>;
+}
+
+export const test: TestType<
+  PlaywrightTestArgs & PlaywrightTestOptions & ComponentFixtures,
+  PlaywrightWorkerArgs & PlaywrightWorkerOptions
+>;
+
+/**
+ * Defines Playwright config
+ */
+export function defineConfig(config: PlaywrightTestConfig): PlaywrightTestConfig;
+export function defineConfig<T>(config: PlaywrightTestConfig<T>): PlaywrightTestConfig<T>;
+export function defineConfig<T, W>(config: PlaywrightTestConfig<T, W>): PlaywrightTestConfig<T, W>;
+
+export { expect, devices } from '@playwright/test';
diff --git a/packages/playwright-ct-core/index.js b/packages/playwright-ct-core/index.js
new file mode 100644
index 0000000000..3cccb3d65a
--- /dev/null
+++ b/packages/playwright-ct-core/index.js
@@ -0,0 +1,32 @@
+/**
+ * Copyright (c) Microsoft Corporation.
+ *
+ * Licensed 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.
+ */
+
+const { test: baseTest, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/test');
+const { fixtures } = require('./lib/mount');
+
+const defineConfig = config => originalDefineConfig({
+  ...config,
+  build: {
+    ...config.build,
+    babelPlugins: [
+      [require.resolve('./lib/tsxTransform')]
+    ],
+  }
+});
+
+const test = baseTest.extend(fixtures);
+
+module.exports = { test, expect, devices, defineConfig };
diff --git a/packages/playwright-ct-core/package.json b/packages/playwright-ct-core/package.json
index 03a9de892f..0817b4ca0c 100644
--- a/packages/playwright-ct-core/package.json
+++ b/packages/playwright-ct-core/package.json
@@ -12,6 +12,10 @@
   },
   "license": "Apache-2.0",
   "exports": {
+    ".": {
+      "types": "./index.d.ts",
+      "default": "./index.js"
+    },
     "./cli": "./cli.js",
     "./lib/mount": "./lib/mount.js",
     "./lib/vitePlugin": "./lib/vitePlugin.js"
diff --git a/packages/playwright-ct-core/src/vitePlugin.ts b/packages/playwright-ct-core/src/vitePlugin.ts
index 5ed8e2fa4c..13b2150264 100644
--- a/packages/playwright-ct-core/src/vitePlugin.ts
+++ b/packages/playwright-ct-core/src/vitePlugin.ts
@@ -58,10 +58,6 @@ export function createPlugin(
       configDir = configDirectory;
     },
 
-    babelPlugins: async () => [
-      [require.resolve('./tsxTransform')]
-    ],
-
     begin: async (suite: Suite) => {
       const use = config.projects[0].use as CtConfig;
       const port = use.ctPort || 3100;
diff --git a/packages/playwright-ct-react/index.js b/packages/playwright-ct-react/index.js
index 7ec0f6b567..04d69e08f5 100644
--- a/packages/playwright-ct-react/index.js
+++ b/packages/playwright-ct-react/index.js
@@ -14,8 +14,7 @@
  * limitations under the License.
  */
 
-const { test: baseTest, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/test');
-const { fixtures } = require('@playwright/experimental-ct-core/lib/mount');
+const { test, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/experimental-ct-core');
 const path = require('path');
 
 const plugin = () => {
@@ -26,6 +25,5 @@ const plugin = () => {
     () => import('@vitejs/plugin-react').then(plugin => plugin.default()));
 };
 const defineConfig = config => originalDefineConfig({ ...config, _plugins: [plugin] });
-const test = baseTest.extend(fixtures);
 
 module.exports = { test, expect, devices, defineConfig };
diff --git a/packages/playwright-ct-react17/index.js b/packages/playwright-ct-react17/index.js
index 7ec0f6b567..04d69e08f5 100644
--- a/packages/playwright-ct-react17/index.js
+++ b/packages/playwright-ct-react17/index.js
@@ -14,8 +14,7 @@
  * limitations under the License.
  */
 
-const { test: baseTest, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/test');
-const { fixtures } = require('@playwright/experimental-ct-core/lib/mount');
+const { test, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/experimental-ct-core');
 const path = require('path');
 
 const plugin = () => {
@@ -26,6 +25,5 @@ const plugin = () => {
     () => import('@vitejs/plugin-react').then(plugin => plugin.default()));
 };
 const defineConfig = config => originalDefineConfig({ ...config, _plugins: [plugin] });
-const test = baseTest.extend(fixtures);
 
 module.exports = { test, expect, devices, defineConfig };
diff --git a/packages/playwright-ct-solid/index.js b/packages/playwright-ct-solid/index.js
index 6d81c3b0ea..2176a7a95e 100644
--- a/packages/playwright-ct-solid/index.js
+++ b/packages/playwright-ct-solid/index.js
@@ -14,8 +14,7 @@
  * limitations under the License.
  */
 
-const { test: baseTest, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/test');
-const { fixtures } = require('@playwright/experimental-ct-core/lib/mount');
+const { test, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/experimental-ct-core');
 const path = require('path');
 
 const plugin = () => {
@@ -26,6 +25,5 @@ const plugin = () => {
     () => import('vite-plugin-solid').then(plugin => plugin.default()));
 };
 const defineConfig = config => originalDefineConfig({ ...config, _plugins: [plugin] });
-const test = baseTest.extend(fixtures);
 
 module.exports = { test, expect, devices, defineConfig };
diff --git a/packages/playwright-ct-svelte/index.js b/packages/playwright-ct-svelte/index.js
index d315751c05..53b5b14a17 100644
--- a/packages/playwright-ct-svelte/index.js
+++ b/packages/playwright-ct-svelte/index.js
@@ -14,8 +14,7 @@
  * limitations under the License.
  */
 
-const { test: baseTest, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/test');
-const { fixtures } = require('@playwright/experimental-ct-core/lib/mount');
+const { test, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/experimental-ct-core');
 const path = require('path');
 
 const plugin = () => {
@@ -26,6 +25,5 @@ const plugin = () => {
     () => import('@sveltejs/vite-plugin-svelte').then(plugin => plugin.svelte()));
 };
 const defineConfig = config => originalDefineConfig({ ...config, _plugins: [plugin] });
-const test = baseTest.extend(fixtures);
 
 module.exports = { test, expect, devices, defineConfig };
diff --git a/packages/playwright-ct-vue/index.js b/packages/playwright-ct-vue/index.js
index b56283bff8..cb9c629a1f 100644
--- a/packages/playwright-ct-vue/index.js
+++ b/packages/playwright-ct-vue/index.js
@@ -14,8 +14,7 @@
  * limitations under the License.
  */
 
-const { test: baseTest, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/test');
-const { fixtures } = require('@playwright/experimental-ct-core/lib/mount');
+const { test, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/experimental-ct-core');
 const path = require('path');
 
 const plugin = () => {
@@ -26,6 +25,5 @@ const plugin = () => {
     () => import('@vitejs/plugin-vue').then(plugin => plugin.default()));
 }
 const defineConfig = config => originalDefineConfig({ ...config, _plugins: [plugin] });
-const test = baseTest.extend(fixtures);
 
 module.exports = { test, expect, devices, defineConfig };
diff --git a/packages/playwright-ct-vue2/index.js b/packages/playwright-ct-vue2/index.js
index 19e0b9d318..9c8c71cb8e 100644
--- a/packages/playwright-ct-vue2/index.js
+++ b/packages/playwright-ct-vue2/index.js
@@ -14,8 +14,7 @@
  * limitations under the License.
  */
 
-const { test: baseTest, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/test');
-const { fixtures } = require('@playwright/experimental-ct-core/lib/mount');
+const { test, expect, devices, defineConfig: originalDefineConfig } = require('@playwright/experimental-ct-core');
 const path = require('path');
 
 const plugin = () => {
@@ -26,6 +25,5 @@ const plugin = () => {
     () => import('@vitejs/plugin-vue2').then(plugin => plugin.default()));
 };
 const defineConfig = config => originalDefineConfig({ ...config, _plugins: [plugin] });
-const test = baseTest.extend(fixtures);
 
 module.exports = { test, expect, devices, defineConfig };
diff --git a/packages/playwright-test/src/common/config.ts b/packages/playwright-test/src/common/config.ts
index 177bdc36ad..a3c443a277 100644
--- a/packages/playwright-test/src/common/config.ts
+++ b/packages/playwright-test/src/common/config.ts
@@ -24,6 +24,7 @@ import { getPackageJsonPath, mergeObjects } from '../util';
 import type { Matcher } from '../util';
 import type { ConfigCLIOverrides } from './ipc';
 import type { FullConfig, FullProject } from '../../types/test';
+import { setTransformConfig } from '../transform/transform';
 
 export type FixturesWithLocation = {
   fixtures: Fixtures;
@@ -124,6 +125,10 @@ export class FullConfigInternal {
     this.projects = projectConfigs.map(p => new FullProjectInternal(configDir, config, this, p, this.configCLIOverrides, throwawayArtifactsPath));
     resolveProjectDependencies(this.projects);
     this._assignUniqueProjectIds(this.projects);
+    setTransformConfig({
+      babelPlugins: (config as any).build?.babelPlugins || [],
+      external: config.build?.external || [],
+    });
     this.config.projects = this.projects.map(p => p.project);
   }
 
diff --git a/packages/playwright-test/src/common/configLoader.ts b/packages/playwright-test/src/common/configLoader.ts
index 96bde3978f..4e30273f3a 100644
--- a/packages/playwright-test/src/common/configLoader.ts
+++ b/packages/playwright-test/src/common/configLoader.ts
@@ -18,7 +18,7 @@ import * as fs from 'fs';
 import * as path from 'path';
 import { isRegExp } from 'playwright-core/lib/utils';
 import type { ConfigCLIOverrides, SerializedConfig } from './ipc';
-import { requireOrImport, setBabelPlugins } from '../transform/transform';
+import { requireOrImport } from '../transform/transform';
 import type { Config, Project } from '../../types/test';
 import { errorWithFile } from '../util';
 import { setCurrentConfig } from './globals';
@@ -41,15 +41,12 @@ export class ConfigLoader {
   }
 
   static async deserialize(data: SerializedConfig): Promise<FullConfigInternal> {
-    setBabelPlugins(data.babelTransformPlugins);
     addToCompilationCache(data.compilationCache);
-    await initializeEsmLoader();
 
     const loader = new ConfigLoader(data.configCLIOverrides);
-
-    if (data.configFile)
-      return await loader.loadConfigFile(data.configFile);
-    return await loader.loadEmptyConfig(data.configDir);
+    const config = data.configFile ? await loader.loadConfigFile(data.configFile) : await loader.loadEmptyConfig(data.configDir);
+    await initializeEsmLoader();
+    return config;
   }
 
   async loadConfigFile(file: string, ignoreProjectDependencies = false): Promise<FullConfigInternal> {
diff --git a/packages/playwright-test/src/common/esmLoaderHost.ts b/packages/playwright-test/src/common/esmLoaderHost.ts
index 14b40098c0..979a0cce17 100644
--- a/packages/playwright-test/src/common/esmLoaderHost.ts
+++ b/packages/playwright-test/src/common/esmLoaderHost.ts
@@ -15,7 +15,7 @@
  */
 
 import { addToCompilationCache, serializeCompilationCache } from '../transform/compilationCache';
-import { getBabelPlugins } from '../transform/transform';
+import { transformConfig } from '../transform/transform';
 import { PortTransport } from '../transform/portTransport';
 
 const port = (globalThis as any).__esmLoaderPort;
@@ -47,6 +47,6 @@ export async function incorporateCompilationCache() {
 export async function initializeEsmLoader() {
   if (!loaderChannel)
     return;
-  await loaderChannel.send('setBabelPlugins', { plugins: getBabelPlugins() });
+  await loaderChannel.send('setTransformConfig', { config: transformConfig() });
   await loaderChannel.send('addToCompilationCache', { cache: serializeCompilationCache() });
 }
diff --git a/packages/playwright-test/src/common/ipc.ts b/packages/playwright-test/src/common/ipc.ts
index aee8d5b639..c662fe4589 100644
--- a/packages/playwright-test/src/common/ipc.ts
+++ b/packages/playwright-test/src/common/ipc.ts
@@ -42,7 +42,6 @@ export type SerializedConfig = {
   configDir: string;
   configCLIOverrides: ConfigCLIOverrides;
   compilationCache: any;
-  babelTransformPlugins: [string, any?][];
 };
 
 export type TtyParams = {
@@ -126,15 +125,11 @@ export type TeardownErrorsPayload = {
 export type EnvProducedPayload = [string, string | null][];
 
 export function serializeConfig(config: FullConfigInternal): SerializedConfig {
-  const babelTransformPlugins: [string, any?][] = [];
-  for (const plugin of config.plugins)
-    babelTransformPlugins.push(...plugin.babelPlugins || []);
   const result: SerializedConfig = {
     configFile: config.config.configFile,
     configDir: config.configDir,
     configCLIOverrides: config.configCLIOverrides,
     compilationCache: serializeCompilationCache(),
-    babelTransformPlugins,
   };
   return result;
 }
diff --git a/packages/playwright-test/src/plugins/index.ts b/packages/playwright-test/src/plugins/index.ts
index 52cc4a9a45..19640084fb 100644
--- a/packages/playwright-test/src/plugins/index.ts
+++ b/packages/playwright-test/src/plugins/index.ts
@@ -20,7 +20,6 @@ import type { InternalReporter } from '../reporters/internalReporter';
 export interface TestRunnerPlugin {
   name: string;
   setup?(config: FullConfig, configDir: string, reporter: InternalReporter): Promise<void>;
-  babelPlugins?(): Promise<[string, any?][]>;
   begin?(suite: Suite): Promise<void>;
   end?(): Promise<void>;
   teardown?(): Promise<void>;
@@ -29,7 +28,6 @@ export interface TestRunnerPlugin {
 export type TestRunnerPluginRegistration = {
   factory: TestRunnerPlugin | (() => TestRunnerPlugin | Promise<TestRunnerPlugin>);
   instance?: TestRunnerPlugin;
-  babelPlugins?: [string, any?][];
 };
 
 export { webServer } from './webServerPlugin';
diff --git a/packages/playwright-test/src/runner/loaderHost.ts b/packages/playwright-test/src/runner/loaderHost.ts
index 67aab310e2..70ccf8f0be 100644
--- a/packages/playwright-test/src/runner/loaderHost.ts
+++ b/packages/playwright-test/src/runner/loaderHost.ts
@@ -22,7 +22,6 @@ import { loadTestFile } from '../common/testLoader';
 import type { FullConfigInternal } from '../common/config';
 import { PoolBuilder } from '../common/poolBuilder';
 import { addToCompilationCache } from '../transform/compilationCache';
-import { setBabelPlugins } from '../transform/transform';
 import { incorporateCompilationCache, initializeEsmLoader } from '../common/esmLoaderHost';
 
 export class InProcessLoaderHost {
@@ -35,10 +34,6 @@ export class InProcessLoaderHost {
   }
 
   async start() {
-    const babelTransformPlugins: [string, any?][] = [];
-    for (const plugin of this._config.plugins)
-      babelTransformPlugins.push(...plugin.babelPlugins || []);
-    setBabelPlugins(babelTransformPlugins);
     await initializeEsmLoader();
   }
 
diff --git a/packages/playwright-test/src/runner/tasks.ts b/packages/playwright-test/src/runner/tasks.ts
index b4d0f28789..3739dc96f2 100644
--- a/packages/playwright-test/src/runner/tasks.ts
+++ b/packages/playwright-test/src/runner/tasks.ts
@@ -119,7 +119,6 @@ function createPluginSetupTask(plugin: TestRunnerPluginRegistration): Task<TestR
     else
       plugin.instance = plugin.factory;
     await plugin.instance?.setup?.(config.config, config.configDir, reporter);
-    plugin.babelPlugins = await plugin.instance?.babelPlugins?.() || [];
     return () => plugin.instance?.teardown?.();
   };
 }
diff --git a/packages/playwright-test/src/transform/esmLoader.ts b/packages/playwright-test/src/transform/esmLoader.ts
index b8e9618442..1285193daf 100644
--- a/packages/playwright-test/src/transform/esmLoader.ts
+++ b/packages/playwright-test/src/transform/esmLoader.ts
@@ -16,8 +16,8 @@
 
 import fs from 'fs';
 import url from 'url';
-import { addToCompilationCache, belongsToNodeModules, currentFileDepsCollector, serializeCompilationCache, startCollectingFileDeps, stopCollectingFileDeps } from './compilationCache';
-import { transformHook, resolveHook, setBabelPlugins } from './transform';
+import { addToCompilationCache, currentFileDepsCollector, serializeCompilationCache, startCollectingFileDeps, stopCollectingFileDeps } from './compilationCache';
+import { transformHook, resolveHook, setTransformConfig, shouldTransform } from './transform';
 import { PortTransport } from './portTransport';
 
 // Node < 18.6: defaultResolve takes 3 arguments.
@@ -50,7 +50,7 @@ async function load(moduleUrl: string, context: { format?: string }, defaultLoad
 
   const filename = url.fileURLToPath(moduleUrl);
   // Bail for node_modules.
-  if (belongsToNodeModules(filename))
+  if (!shouldTransform(filename))
     return defaultLoad(moduleUrl, context, defaultLoad);
 
   const code = fs.readFileSync(filename, 'utf-8');
@@ -68,8 +68,8 @@ let transport: PortTransport | undefined;
 
 function globalPreload(context: { port: MessagePort }) {
   transport = new PortTransport(context.port, async (method, params) => {
-    if (method === 'setBabelPlugins') {
-      setBabelPlugins(params.plugins);
+    if (method === 'setTransformConfig') {
+      setTransformConfig(params.config);
       return;
     }
 
diff --git a/packages/playwright-test/src/transform/transform.ts b/packages/playwright-test/src/transform/transform.ts
index bd0ae9078b..9b29991660 100644
--- a/packages/playwright-test/src/transform/transform.ts
+++ b/packages/playwright-test/src/transform/transform.ts
@@ -23,7 +23,8 @@ import type { TsConfigLoaderResult } from '../third_party/tsconfig-loader';
 import { tsConfigLoader } from '../third_party/tsconfig-loader';
 import Module from 'module';
 import type { BabelPlugin, BabelTransformFunction } from './babelBundle';
-import { fileIsModule, resolveImportSpecifierExtension } from '../util';
+import { createFileMatcher, fileIsModule, resolveImportSpecifierExtension } from '../util';
+import type { Matcher } from '../util';
 import { getFromCompilationCache, currentFileDepsCollector, belongsToNodeModules } from './compilationCache';
 
 const version = require('../../package.json').version;
@@ -35,14 +36,25 @@ type ParsedTsConfigData = {
 };
 const cachedTSConfigs = new Map<string, ParsedTsConfigData | undefined>();
 
-let babelPlugins: BabelPlugin[] = [];
+export type TransformConfig = {
+  babelPlugins: [string, any?][];
+  external: string[];
+};
 
-export function setBabelPlugins(plugins: BabelPlugin[]) {
-  babelPlugins = plugins;
+let _transformConfig: TransformConfig = {
+  babelPlugins: [],
+  external: [],
+};
+
+let _externalMatcher: Matcher = () => false;
+
+export function setTransformConfig(config: TransformConfig) {
+  _transformConfig = config;
+  _externalMatcher = createFileMatcher(_transformConfig.external);
 }
 
-export function getBabelPlugins(): BabelPlugin[] {
-  return babelPlugins;
+export function transformConfig(): TransformConfig {
+  return _transformConfig;
 }
 
 function validateTsConfig(tsconfig: TsConfigLoaderResult): ParsedTsConfigData | undefined {
@@ -75,7 +87,7 @@ const builtins = new Set(Module.builtinModules);
 export function resolveHook(filename: string, specifier: string): string | undefined {
   if (specifier.startsWith('node:') || builtins.has(specifier))
     return;
-  if (belongsToNodeModules(filename))
+  if (!shouldTransform(filename))
     return;
 
   if (isRelativeSpecifier(specifier))
@@ -138,13 +150,19 @@ export function resolveHook(filename: string, specifier: string): string | undef
   }
 }
 
+export function shouldTransform(filename: string): boolean {
+  if (_externalMatcher(filename))
+    return false;
+  return !belongsToNodeModules(filename);
+}
+
 export function transformHook(originalCode: string, filename: string, moduleUrl?: string): string {
   const isTypeScript = filename.endsWith('.ts') || filename.endsWith('.tsx') || filename.endsWith('.mts') || filename.endsWith('.cts');
   const hasPreprocessor =
       process.env.PW_TEST_SOURCE_TRANSFORM &&
       process.env.PW_TEST_SOURCE_TRANSFORM_SCOPE &&
       process.env.PW_TEST_SOURCE_TRANSFORM_SCOPE.split(pathSeparator).some(f => filename.startsWith(f));
-  const pluginsPrologue = babelPlugins;
+  const pluginsPrologue = _transformConfig.babelPlugins;
   const pluginsEpilogue = hasPreprocessor ? [[process.env.PW_TEST_SOURCE_TRANSFORM!]] as BabelPlugin[] : [];
   const hash = calculateHash(originalCode, filename, !!moduleUrl, pluginsPrologue, pluginsEpilogue);
   const { cachedCode, addToCache } = getFromCompilationCache(filename, hash, moduleUrl);
@@ -209,7 +227,7 @@ function installTransform(): () => void {
   (Module as any)._resolveFilename = resolveFilename;
 
   const revertPirates = pirates.addHook((code: string, filename: string) => {
-    if (belongsToNodeModules(filename))
+    if (!shouldTransform(filename))
       return code;
     return transformHook(code, filename);
   }, { exts: ['.ts', '.tsx', '.js', '.jsx', '.mjs'] });
diff --git a/packages/playwright-test/types/test.d.ts b/packages/playwright-test/types/test.d.ts
index c5905e9851..193b569c5f 100644
--- a/packages/playwright-test/types/test.d.ts
+++ b/packages/playwright-test/types/test.d.ts
@@ -569,6 +569,31 @@ interface TestConfig {
    *
    */
   webServer?: TestConfigWebServer | TestConfigWebServer[];
+  /**
+   * Transpiler configuration.
+   *
+   * **Usage**
+   *
+   * ```js
+   * // playwright.config.ts
+   * import { defineConfig } from '@playwright/test';
+   *
+   * export default defineConfig({
+   *   build: {
+   *     external: '**\/*bundle.js',
+   *   },
+   * });
+   * ```
+   *
+   */
+  build?: {
+    /**
+     * Paths to exclude from the transpilation expressed as glob patterns. Typically heavy JS bundles your tests
+     * reference.
+     */
+    external?: Array<string>;
+  };
+
   /**
    * Configuration for the `expect` assertion library. Learn more about [various timeouts](https://playwright.dev/docs/test-timeouts).
    *
diff --git a/tests/playwright-test/babel.spec.ts b/tests/playwright-test/babel.spec.ts
index bd932c7601..3fb0a1a725 100644
--- a/tests/playwright-test/babel.spec.ts
+++ b/tests/playwright-test/babel.spec.ts
@@ -131,3 +131,22 @@ test('should not read browserslist file', async ({ runInlineTest }) => {
   expect(result.passed).toBe(1);
   expect(result.failed).toBe(0);
 });
+
+test('should not transform external', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'playwright.config.ts': `
+      import { defineConfig } from '@playwright/test';
+      export default defineConfig({
+        build: {
+          external: ['**/a.spec.ts']
+        }
+      });
+    `,
+    'a.spec.ts': `
+      import { test, expect } from '@playwright/test';
+      test('succeeds', () => {});
+    `
+  });
+  expect(result.exitCode).toBe(1);
+  expect(result.output).toContain('Cannot use import statement outside a module');
+});