diff --git a/packages/playwright-core/src/server/trace/viewer/traceViewer.ts b/packages/playwright-core/src/server/trace/viewer/traceViewer.ts
index ee2ccac593..6d45e7c6f5 100644
--- a/packages/playwright-core/src/server/trace/viewer/traceViewer.ts
+++ b/packages/playwright-core/src/server/trace/viewer/traceViewer.ts
@@ -46,7 +46,6 @@ export type TraceViewerRedirectOptions = {
   reporter?: string[];
   webApp?: string;
   isServer?: boolean;
-  outputDir?: string;
   updateSnapshots?: 'all' | 'none' | 'missing';
 };
 
@@ -133,8 +132,6 @@ export async function installRootRedirect(server: HttpServer, traceUrls: string[
     params.append('timeout', String(options.timeout));
   if (options.headed)
     params.append('headed', '');
-  if (options.outputDir)
-    params.append('outputDir', options.outputDir);
   if (options.updateSnapshots)
     params.append('updateSnapshots', options.updateSnapshots);
   for (const reporter of options.reporter || [])
diff --git a/packages/playwright/src/isomorphic/testServerInterface.ts b/packages/playwright/src/isomorphic/testServerInterface.ts
index 22cb9e35ef..ce1c1888d5 100644
--- a/packages/playwright/src/isomorphic/testServerInterface.ts
+++ b/packages/playwright/src/isomorphic/testServerInterface.ts
@@ -45,7 +45,7 @@ export interface TestServerInterface {
 
   installBrowsers(params: {}): Promise<void>;
 
-  runGlobalSetup(params: { outputDir?: string }): Promise<{
+  runGlobalSetup(params: {}): Promise<{
     report: ReportEntry[],
     status: reporterTypes.FullResult['status']
   }>;
@@ -82,7 +82,6 @@ export interface TestServerInterface {
     locations?: string[];
     grep?: string;
     grepInvert?: string;
-    outputDir?: string;
   }): Promise<{
     report: ReportEntry[],
     status: reporterTypes.FullResult['status']
@@ -96,7 +95,6 @@ export interface TestServerInterface {
     headed?: boolean;
     workers?: number | string;
     timeout?: number,
-    outputDir?: string;
     updateSnapshots?: 'all' | 'none' | 'missing';
     reporters?: string[],
     trace?: 'on' | 'off';
diff --git a/packages/playwright/src/program.ts b/packages/playwright/src/program.ts
index 775ef27065..136606b26c 100644
--- a/packages/playwright/src/program.ts
+++ b/packages/playwright/src/program.ts
@@ -161,7 +161,7 @@ async function runTests(args: string[], opts: { [key: string]: any }) {
     if (opts.onlyChanged)
       throw new Error(`--only-changed is not supported in UI mode. If you'd like that to change, see https://github.com/microsoft/playwright/issues/15075 for more details.`);
 
-    const status = await testServer.runUIMode(opts.config, {
+    const status = await testServer.runUIMode(opts.config, cliOverrides, {
       host: opts.uiHost,
       port: opts.uiPort ? +opts.uiPort : undefined,
       args,
@@ -172,7 +172,6 @@ async function runTests(args: string[], opts: { [key: string]: any }) {
       reporter: Array.isArray(opts.reporter) ? opts.reporter : opts.reporter ? [opts.reporter] : undefined,
       workers: cliOverrides.workers,
       timeout: cliOverrides.timeout,
-      outputDir: cliOverrides.outputDir,
       updateSnapshots: cliOverrides.updateSnapshots,
     });
     await stopProfiling('runner');
@@ -227,7 +226,7 @@ async function runTests(args: string[], opts: { [key: string]: any }) {
 async function runTestServer(opts: { [key: string]: any }) {
   const host = opts.host || 'localhost';
   const port = opts.port ? +opts.port : 0;
-  const status = await testServer.runTestServer(opts.config, { host, port });
+  const status = await testServer.runTestServer(opts.config, { }, { host, port });
   if (status === 'restarted')
     return;
   const exitCode = status === 'interrupted' ? 130 : (status === 'passed' ? 0 : 1);
diff --git a/packages/playwright/src/runner/testServer.ts b/packages/playwright/src/runner/testServer.ts
index d4433b2d85..ee3cefaac4 100644
--- a/packages/playwright/src/runner/testServer.ts
+++ b/packages/playwright/src/runner/testServer.ts
@@ -44,14 +44,16 @@ const originalStderrWrite = process.stderr.write;
 
 class TestServer {
   private _configLocation: ConfigLocation;
+  private _configCLIOverrides: ConfigCLIOverrides;
   private _dispatcher: TestServerDispatcher | undefined;
 
-  constructor(configLocation: ConfigLocation) {
+  constructor(configLocation: ConfigLocation, configCLIOverrides: ConfigCLIOverrides) {
     this._configLocation = configLocation;
+    this._configCLIOverrides = configCLIOverrides;
   }
 
   async start(options: { host?: string, port?: number }): Promise<HttpServer> {
-    this._dispatcher = new TestServerDispatcher(this._configLocation);
+    this._dispatcher = new TestServerDispatcher(this._configLocation, this._configCLIOverrides);
     return await startTraceViewerServer({ ...options, transport: this._dispatcher.transport });
   }
 
@@ -63,6 +65,7 @@ class TestServer {
 
 export class TestServerDispatcher implements TestServerInterface {
   private _configLocation: ConfigLocation;
+  private _configCLIOverrides: ConfigCLIOverrides;
 
   private _watcher: Watcher;
   private _watchedProjectDirs = new Set<string>();
@@ -81,8 +84,9 @@ export class TestServerDispatcher implements TestServerInterface {
   private _closeOnDisconnect = false;
   private _populateDependenciesOnList = false;
 
-  constructor(configLocation: ConfigLocation) {
+  constructor(configLocation: ConfigLocation, configCLIOverrides: ConfigCLIOverrides) {
     this._configLocation = configLocation;
+    this._configCLIOverrides = configCLIOverrides;
     this.transport = {
       onconnect: () => {},
       dispatch: (method, params) => (this as any)[method](params),
@@ -145,11 +149,8 @@ export class TestServerDispatcher implements TestServerInterface {
   async runGlobalSetup(params: Parameters<TestServerInterface['runGlobalSetup']>[0]): ReturnType<TestServerInterface['runGlobalSetup']> {
     await this.runGlobalTeardown();
 
-    const overrides: ConfigCLIOverrides = {
-      outputDir: params.outputDir,
-    };
     const { reporter, report } = await this._collectingInternalReporter(new ListReporter());
-    const config = await this._loadConfigOrReportError(reporter, overrides);
+    const config = await this._loadConfigOrReportError(reporter, this._configCLIOverrides);
     if (!config)
       return { status: 'failed', report };
 
@@ -239,9 +240,9 @@ export class TestServerDispatcher implements TestServerInterface {
     config?: FullConfigInternal,
   }> {
     const overrides: ConfigCLIOverrides = {
+      ...this._configCLIOverrides,
       repeatEach: 1,
       retries: 0,
-      outputDir: params.outputDir,
     };
     const { reporter, report } = await this._collectingInternalReporter();
     const config = await this._loadConfigOrReportError(reporter, overrides);
@@ -295,6 +296,7 @@ export class TestServerDispatcher implements TestServerInterface {
   private async _innerRunTests(params: Parameters<TestServerInterface['runTests']>[0]): ReturnType<TestServerInterface['runTests']> {
     await this.stopTests();
     const overrides: ConfigCLIOverrides = {
+      ...this._configCLIOverrides,
       repeatEach: 1,
       retries: 0,
       preserveOutputDir: true,
@@ -307,7 +309,6 @@ export class TestServerDispatcher implements TestServerInterface {
         _optionContextReuseMode: params.reuseContext ? 'when-possible' : undefined,
         _optionConnectOptions: params.connectWsEndpoint ? { wsEndpoint: params.connectWsEndpoint } : undefined,
       },
-      outputDir: params.outputDir,
       updateSnapshots: params.updateSnapshots,
       workers: params.workers,
     };
@@ -424,9 +425,9 @@ export class TestServerDispatcher implements TestServerInterface {
   }
 }
 
-export async function runUIMode(configFile: string | undefined, options: TraceViewerServerOptions & TraceViewerRedirectOptions): Promise<reporterTypes.FullResult['status'] | 'restarted'> {
+export async function runUIMode(configFile: string | undefined, configCLIOverrides: ConfigCLIOverrides, options: TraceViewerServerOptions & TraceViewerRedirectOptions): Promise<reporterTypes.FullResult['status'] | 'restarted'> {
   const configLocation = resolveConfigLocation(configFile);
-  return await innerRunTestServer(configLocation, options, async (server: HttpServer, cancelPromise: ManualPromise<void>) => {
+  return await innerRunTestServer(configLocation, configCLIOverrides, options, async (server: HttpServer, cancelPromise: ManualPromise<void>) => {
     await installRootRedirect(server, [], { ...options, webApp: 'uiMode.html' });
     if (options.host !== undefined || options.port !== undefined) {
       await openTraceInBrowser(server.urlPrefix('human-readable'));
@@ -442,18 +443,18 @@ export async function runUIMode(configFile: string | undefined, options: TraceVi
   });
 }
 
-export async function runTestServer(configFile: string | undefined, options: { host?: string, port?: number }): Promise<reporterTypes.FullResult['status'] | 'restarted'> {
+export async function runTestServer(configFile: string | undefined, configCLIOverrides: ConfigCLIOverrides, options: { host?: string, port?: number }): Promise<reporterTypes.FullResult['status'] | 'restarted'> {
   const configLocation = resolveConfigLocation(configFile);
-  return await innerRunTestServer(configLocation, options, async server => {
+  return await innerRunTestServer(configLocation, configCLIOverrides, options, async server => {
     // eslint-disable-next-line no-console
     console.log('Listening on ' + server.urlPrefix('precise').replace('http:', 'ws:') + '/' + server.wsGuid());
   });
 }
 
-async function innerRunTestServer(configLocation: ConfigLocation, options: { host?: string, port?: number }, openUI: (server: HttpServer, cancelPromise: ManualPromise<void>, configLocation: ConfigLocation) => Promise<void>): Promise<reporterTypes.FullResult['status'] | 'restarted'> {
+async function innerRunTestServer(configLocation: ConfigLocation, configCLIOverrides: ConfigCLIOverrides, options: { host?: string, port?: number }, openUI: (server: HttpServer, cancelPromise: ManualPromise<void>, configLocation: ConfigLocation) => Promise<void>): Promise<reporterTypes.FullResult['status'] | 'restarted'> {
   if (restartWithExperimentalTsEsm(undefined, true))
     return 'restarted';
-  const testServer = new TestServer(configLocation);
+  const testServer = new TestServer(configLocation, configCLIOverrides);
   const cancelPromise = new ManualPromise<void>();
   const sigintWatcher = new SigIntWatcher();
   process.stdin.on('close', () => gracefullyProcessExitDoNotHang(0));
diff --git a/packages/playwright/src/runner/watchMode.ts b/packages/playwright/src/runner/watchMode.ts
index 2a2c9802f1..bdbe2d5c2d 100644
--- a/packages/playwright/src/runner/watchMode.ts
+++ b/packages/playwright/src/runner/watchMode.ts
@@ -75,7 +75,7 @@ export async function runWatchModeLoop(configLocation: ConfigLocation, initialOp
   const options: WatchModeOptions = { ...initialOptions };
   let bufferMode = false;
 
-  const testServerDispatcher = new TestServerDispatcher(configLocation);
+  const testServerDispatcher = new TestServerDispatcher(configLocation, {});
   const transport = new InMemoryTransport(
       async data => {
         const { id, method, params } = JSON.parse(data);
diff --git a/packages/trace-viewer/src/ui/uiModeView.tsx b/packages/trace-viewer/src/ui/uiModeView.tsx
index ba74e60092..5c6ab7969b 100644
--- a/packages/trace-viewer/src/ui/uiModeView.tsx
+++ b/packages/trace-viewer/src/ui/uiModeView.tsx
@@ -58,7 +58,6 @@ const queryParams = {
   workers: searchParams.get('workers') || undefined,
   timeout: searchParams.has('timeout') ? +searchParams.get('timeout')! : undefined,
   headed: searchParams.has('headed'),
-  outputDir: searchParams.get('outputDir') || undefined,
   updateSnapshots: (searchParams.get('updateSnapshots') as 'all' | 'none' | 'missing' | undefined) || undefined,
   reporters: searchParams.has('reporter') ? searchParams.getAll('reporter') : undefined,
   pathSeparator: searchParams.get('pathSeparator') || '/',
@@ -187,14 +186,12 @@ export const UIModeView: React.FC<{}> = ({
           interceptStdio: true,
           watchTestDirs: true
         });
-        const { status, report } = await testServerConnection.runGlobalSetup({
-          outputDir: queryParams.outputDir,
-        });
+        const { status, report } = await testServerConnection.runGlobalSetup({});
         teleSuiteUpdater.processGlobalReport(report);
         if (status !== 'passed')
           return;
 
-        const result = await testServerConnection.listTests({ projects: queryParams.projects, locations: queryParams.args, grep: queryParams.grep, grepInvert: queryParams.grepInvert, outputDir: queryParams.outputDir });
+        const result = await testServerConnection.listTests({ projects: queryParams.projects, locations: queryParams.args, grep: queryParams.grep, grepInvert: queryParams.grepInvert });
         teleSuiteUpdater.processListReport(result.report);
 
         testServerConnection.onReport(params => {
@@ -296,7 +293,6 @@ export const UIModeView: React.FC<{}> = ({
         workers: singleWorker ? '1' : (queryParams.workers === '1' ? undefined : queryParams.workers),
         timeout: queryParams.timeout,
         headed: showBrowser,
-        outputDir: queryParams.outputDir,
         updateSnapshots: updateSnapshots ? 'all' : queryParams.updateSnapshots,
         reporters: queryParams.reporters,
         trace: 'on',
@@ -319,7 +315,7 @@ export const UIModeView: React.FC<{}> = ({
       commandQueue.current = commandQueue.current.then(async () => {
         setIsLoading(true);
         try {
-          const result = await testServerConnection.listTests({ projects: queryParams.projects, locations: queryParams.args, grep: queryParams.grep, grepInvert: queryParams.grepInvert, outputDir: queryParams.outputDir });
+          const result = await testServerConnection.listTests({ projects: queryParams.projects, locations: queryParams.args, grep: queryParams.grep, grepInvert: queryParams.grepInvert });
           teleSuiteUpdater.processListReport(result.report);
         } catch (e) {
           // eslint-disable-next-line no-console
diff --git a/tests/playwright-test/ui-mode-test-run.spec.ts b/tests/playwright-test/ui-mode-test-run.spec.ts
index 9c1120ea04..81316f42ee 100644
--- a/tests/playwright-test/ui-mode-test-run.spec.ts
+++ b/tests/playwright-test/ui-mode-test-run.spec.ts
@@ -444,3 +444,62 @@ test('should show proper total when using deps', async ({ runUITest }) => {
   `);
   await expect(page.getByTestId('status-line')).toHaveText('2/2 passed (100%)');
 });
+
+test('should respect --tsconfig option', {
+  annotation: { type: 'issue', description: 'https://github.com/microsoft/playwright/issues/32797' }
+}, async ({ runUITest }) => {
+  const { page } = await runUITest({
+    'playwright.config.ts': `
+      import { foo } from '~/foo';
+      export default {
+        testDir: './tests' + foo,
+      };
+    `,
+    'tsconfig.json': `{
+      "compilerOptions": {
+        "baseUrl": ".",
+        "paths": {
+          "~/*": ["./does-not-exist/*"],
+        },
+      },
+    }`,
+    'tsconfig.special.json': `{
+      "compilerOptions": {
+        "baseUrl": ".",
+        "paths": {
+          "~/*": ["./mapped-from-root/*"],
+        },
+      },
+    }`,
+    'mapped-from-root/foo.ts': `
+      export const foo = 42;
+    `,
+    'tests42/tsconfig.json': `{
+      "compilerOptions": {
+        "baseUrl": ".",
+        "paths": {
+          "~/*": ["../should-be-ignored/*"],
+        },
+      },
+    }`,
+    'tests42/a.test.ts': `
+      import { foo } from '~/foo';
+      import { test, expect } from '@playwright/test';
+      test('test', ({}) => {
+        expect(foo).toBe(42);
+      });
+    `,
+    'should-be-ignored/foo.ts': `
+      export const foo = 43;
+    `,
+  }, undefined, { additionalArgs: ['--tsconfig=tsconfig.special.json'] });
+
+  await page.getByTitle('Run all').click();
+
+  await expect.poll(dumpTestTree(page)).toBe(`
+    ▼ ✅ a.test.ts
+        ✅ test
+  `);
+
+  await expect(page.getByTestId('status-line')).toHaveText('1/1 passed (100%)');
+});
\ No newline at end of file