diff --git a/packages/playwright-test/src/cli.ts b/packages/playwright-test/src/cli.ts
index c88c336644..62fb72acfa 100644
--- a/packages/playwright-test/src/cli.ts
+++ b/packages/playwright-test/src/cli.ts
@@ -21,7 +21,7 @@ import fs from 'fs';
 import path from 'path';
 import { Runner } from './runner/runner';
 import { stopProfiling, startProfiling, gracefullyProcessExitDoNotHang } from 'playwright-core/lib/utils';
-import { experimentalLoaderOption, fileIsModule, serializeError } from './util';
+import { execArgvWithoutExperimentalLoaderOptions, execArgvWithExperimentalLoaderOptions, fileIsModule, serializeError } from './util';
 import { showHTMLReport } from './reporters/html';
 import { createMergedReport } from './reporters/merge';
 import { ConfigLoader, resolveConfigFile } from './common/configLoader';
@@ -275,17 +275,19 @@ function restartWithExperimentalTsEsm(configFile: string | null): boolean {
     return false;
   if (process.env.PW_DISABLE_TS_ESM)
     return false;
-  if (process.env.PW_TS_ESM_ON)
+  if (process.env.PW_TS_ESM_ON) {
+    // clear execArgv after restart, so that childProcess.fork in user code does not inherit our loader.
+    process.execArgv = execArgvWithoutExperimentalLoaderOptions();
     return false;
+  }
   if (!fileIsModule(configFile))
     return false;
-  const NODE_OPTIONS = (process.env.NODE_OPTIONS || '') + experimentalLoaderOption();
-  const innerProcess = require('child_process').fork(require.resolve('./cli'), process.argv.slice(2), {
+  const innerProcess = (require('child_process') as typeof import('child_process')).fork(require.resolve('./cli'), process.argv.slice(2), {
     env: {
       ...process.env,
-      NODE_OPTIONS,
       PW_TS_ESM_ON: '1',
-    }
+    },
+    execArgv: execArgvWithExperimentalLoaderOptions(),
   });
 
   innerProcess.on('close', (code: number | null) => {
diff --git a/packages/playwright-test/src/common/process.ts b/packages/playwright-test/src/common/process.ts
index 8847c7f1c1..e03fcbf9a1 100644
--- a/packages/playwright-test/src/common/process.ts
+++ b/packages/playwright-test/src/common/process.ts
@@ -18,7 +18,7 @@ import type { WriteStream } from 'tty';
 import type { EnvProducedPayload, ProcessInitParams, TtyParams } from './ipc';
 import { startProfiling, stopProfiling } from 'playwright-core/lib/utils';
 import type { TestInfoError } from '../../types/test';
-import { serializeError } from '../util';
+import { execArgvWithoutExperimentalLoaderOptions, serializeError } from '../util';
 
 export type ProtocolRequest = {
   id: number;
@@ -51,6 +51,9 @@ process.on('disconnect', gracefullyCloseAndExit);
 process.on('SIGINT', () => {});
 process.on('SIGTERM', () => {});
 
+// Clear execArgv immediately, so that the user-code does not inherit our loader.
+process.execArgv = execArgvWithoutExperimentalLoaderOptions();
+
 let processRunner: ProcessRunner;
 let processName: string;
 const startingEnv = { ...process.env };
diff --git a/packages/playwright-test/src/plugins/webServerPlugin.ts b/packages/playwright-test/src/plugins/webServerPlugin.ts
index cfff7ad441..84ba892c53 100644
--- a/packages/playwright-test/src/plugins/webServerPlugin.ts
+++ b/packages/playwright-test/src/plugins/webServerPlugin.ts
@@ -22,7 +22,6 @@ import { raceAgainstDeadline, launchProcess, httpRequest, monotonicTime } from '
 import type { FullConfig } from '../../types/testReporter';
 import type { TestRunnerPlugin } from '.';
 import type { FullConfigInternal } from '../common/config';
-import { envWithoutExperimentalLoaderOptions } from '../util';
 import type { ReporterV2 } from '../reporters/reporterV2';
 
 
@@ -95,7 +94,7 @@ export class WebServerPlugin implements TestRunnerPlugin {
       command: this._options.command,
       env: {
         ...DEFAULT_ENVIRONMENT_VARIABLES,
-        ...envWithoutExperimentalLoaderOptions(),
+        ...process.env,
         ...this._options.env,
       },
       cwd: this._options.cwd,
diff --git a/packages/playwright-test/src/runner/processHost.ts b/packages/playwright-test/src/runner/processHost.ts
index 72af3f64a7..c40694f829 100644
--- a/packages/playwright-test/src/runner/processHost.ts
+++ b/packages/playwright-test/src/runner/processHost.ts
@@ -19,6 +19,7 @@ import { EventEmitter } from 'events';
 import { debug } from 'playwright-core/lib/utilsBundle';
 import type { EnvProducedPayload, ProcessInitParams } from '../common/ipc';
 import type { ProtocolResponse } from '../common/process';
+import { execArgvWithExperimentalLoaderOptions } from '../util';
 
 export type ProcessExitData = {
   unexpectedly: boolean;
@@ -50,6 +51,7 @@ export class ProcessHost extends EventEmitter {
       detached: false,
       env: { ...process.env, ...this._extraEnv },
       stdio: inheritStdio ? ['ignore', 'inherit', 'inherit', 'ipc'] : ['ignore', 'ignore', process.env.PW_RUNNER_DEBUG ? 'inherit' : 'ignore', 'ipc'],
+      ...(process.env.PW_TS_ESM_ON ? { execArgv: execArgvWithExperimentalLoaderOptions() } : {}),
     });
     this.process.on('exit', (code, signal) => {
       this.didExit = true;
diff --git a/packages/playwright-test/src/util.ts b/packages/playwright-test/src/util.ts
index fab927c2da..1ef5c61452 100644
--- a/packages/playwright-test/src/util.ts
+++ b/packages/playwright-test/src/util.ts
@@ -303,16 +303,20 @@ function folderIsModule(folder: string): boolean {
   return require(packageJsonPath).type === 'module';
 }
 
-export function experimentalLoaderOption() {
-  return ` --no-warnings --experimental-loader=${url.pathToFileURL(require.resolve('@playwright/test/lib/transform/esmLoader')).toString()}`;
+const kExperimentalLoaderOptions = [
+  '--no-warnings',
+  `--experimental-loader=${url.pathToFileURL(require.resolve('@playwright/test/lib/transform/esmLoader')).toString()}`,
+];
+
+export function execArgvWithExperimentalLoaderOptions() {
+  return [
+    ...process.execArgv,
+    ...kExperimentalLoaderOptions,
+  ];
 }
 
-export function envWithoutExperimentalLoaderOptions(): NodeJS.ProcessEnv {
-  const substring = experimentalLoaderOption();
-  const result = { ...process.env };
-  if (result.NODE_OPTIONS)
-    result.NODE_OPTIONS = result.NODE_OPTIONS.replace(substring, '').trim() || undefined;
-  return result;
+export function execArgvWithoutExperimentalLoaderOptions() {
+  return process.execArgv.filter(arg => !kExperimentalLoaderOptions.includes(arg));
 }
 
 // This follows the --moduleResolution=bundler strategy from tsc.
diff --git a/tests/playwright-test/assets/simple-server.js b/tests/playwright-test/assets/simple-server.js
index 0a78049cff..e6db0c69c7 100644
--- a/tests/playwright-test/assets/simple-server.js
+++ b/tests/playwright-test/assets/simple-server.js
@@ -9,8 +9,8 @@ const requestListener = function (req, res) {
     res.end('hello');
     return;
   }
-  if (req.url === '/env-FOO') {
-    res.end(process.env.FOO);
+  if (req.url.startsWith('/env-')) {
+    res.end(process.env[req.url.substring(5)]);
     return;
   }
   if (req.url === '/port') {
diff --git a/tests/playwright-test/esm.spec.ts b/tests/playwright-test/esm.spec.ts
index 2577629216..d3ad3c7360 100644
--- a/tests/playwright-test/esm.spec.ts
+++ b/tests/playwright-test/esm.spec.ts
@@ -547,3 +547,88 @@ test('should disallow ESM when config is cjs', async ({ runInlineTest }) => {
   expect(result.exitCode).toBe(1);
   expect(result.output).toContain('Unknown file extension ".ts"');
 });
+
+test('should be able to use use execSync with a Node.js file inside a spec', async ({ runInlineTest }) => {
+  test.info().annotations.push({ type: 'issue', description: 'https://github.com/microsoft/playwright/issues/24516' });
+  const result = await runInlineTest({
+    'global-setup.ts': `
+      import { execSync, spawnSync, fork } from 'child_process';
+      console.log('%%global-setup import level');
+      console.log('%%execSync: ' + execSync('node hello.js').toString());
+      console.log('%%spawnSync: ' + spawnSync('node', ['hello.js']).stdout.toString());
+      export default async () => {
+        console.log('%%global-setup export level');
+        console.log('%%execSync: ' + execSync('node hello.js').toString());
+        console.log('%%spawnSync: ' + spawnSync('node', ['hello.js']).stdout.toString());
+        const child = fork('hellofork.js');
+        child.on('message', (m) => console.log('%%fork: ' + m));
+        await new Promise((resolve) => child.on('exit', (code) => resolve(code)));
+      }
+    `,
+    'global-teardown.ts': `
+      import { execSync, spawnSync, fork } from 'child_process';
+      console.log('%%global-teardown import level');
+      console.log('%%execSync: ' + execSync('node hello.js').toString());
+      console.log('%%spawnSync: ' + spawnSync('node', ['hello.js']).stdout.toString());
+      export default async () => {
+        console.log('%%global-teardown export level');
+        console.log('%%execSync: ' + execSync('node hello.js').toString());
+        console.log('%%spawnSync: ' + spawnSync('node', ['hello.js']).stdout.toString());
+        const child = fork('hellofork.js');
+        child.on('message', (m) => console.log('%%fork: ' + m));
+        await new Promise((resolve) => child.on('exit', (code) => resolve(code)));
+      }
+    `,
+    'package.json': `{ "type": "module" }`,
+    'playwright.config.ts': `export default {
+      projects: [{name: 'foo'}],
+      globalSetup: './global-setup.ts',
+      globalTeardown: './global-teardown.ts',
+    };`,
+    'hello.js': `console.log('hello from hello.js');`,
+    'hellofork.js': `process.send('hello from hellofork.js');`,
+    'a.test.ts': `
+      import { test, expect } from '@playwright/test';
+      import { execSync, spawnSync, fork } from 'child_process';
+      console.log('%%inside test file');
+      console.log('%%execSync: ' + execSync('node hello.js').toString());
+      console.log('%%spawnSync: ' + spawnSync('node', ['hello.js']).stdout.toString());
+      test('check project name', async ({}) => {
+        console.log('%%inside test');
+        console.log('%%execSync: ' + execSync('node hello.js').toString());
+        console.log('%%spawnSync: ' + spawnSync('node', ['hello.js']).stdout.toString());
+        const child = fork('hellofork.js');
+        child.on('message', (m) => console.log('%%fork: ' + m));
+        await new Promise((resolve) => child.on('exit', (code) => resolve(code)));
+      });
+    `,
+  });
+  expect(result.exitCode).toBe(0);
+  expect(result.passed).toBe(1);
+  expect(result.outputLines).toEqual([
+    'global-setup import level',
+    'execSync: hello from hello.js',
+    'spawnSync: hello from hello.js',
+    'global-teardown import level',
+    'execSync: hello from hello.js',
+    'spawnSync: hello from hello.js',
+    'global-setup export level',
+    'execSync: hello from hello.js',
+    'spawnSync: hello from hello.js',
+    'fork: hello from hellofork.js',
+    'inside test file',
+    'execSync: hello from hello.js',
+    'spawnSync: hello from hello.js',
+    'inside test file',
+    'execSync: hello from hello.js',
+    'spawnSync: hello from hello.js',
+    'inside test',
+    'execSync: hello from hello.js',
+    'spawnSync: hello from hello.js',
+    'fork: hello from hellofork.js',
+    'global-teardown export level',
+    'execSync: hello from hello.js',
+    'spawnSync: hello from hello.js',
+    'fork: hello from hellofork.js',
+  ]);
+});
diff --git a/tests/playwright-test/web-server.spec.ts b/tests/playwright-test/web-server.spec.ts
index 46150f3eef..4dee864767 100644
--- a/tests/playwright-test/web-server.spec.ts
+++ b/tests/playwright-test/web-server.spec.ts
@@ -89,6 +89,7 @@ test('should create a server', async ({ runInlineTest }, { workerIndex }) => {
 
 test('should create a server with environment variables', async ({ runInlineTest }, { workerIndex }) => {
   const port = workerIndex * 2 + 10500;
+  process.env['FOOEXTERNAL'] = 'EXTERNAL-BAR';
   const result = await runInlineTest({
     'test.spec.ts': `
       import { test, expect } from '@playwright/test';
@@ -96,6 +97,9 @@ test('should create a server with environment variables', async ({ runInlineTest
         expect(baseURL).toBe('http://localhost:${port}');
         await page.goto(baseURL + '/env-FOO');
         expect(await page.textContent('body')).toBe('BAR');
+
+        await page.goto(baseURL + '/env-FOOEXTERNAL');
+        expect(await page.textContent('body')).toBe('EXTERNAL-BAR');
       });
     `,
     'playwright.config.ts': `
@@ -115,6 +119,7 @@ test('should create a server with environment variables', async ({ runInlineTest
   expect(result.output).toContain('[WebServer] listening');
   expect(result.output).toContain('[WebServer] error from server');
   expect(result.report.suites[0].specs[0].tests[0].results[0].status).toContain('passed');
+  delete process.env['FOOEXTERNAL'];
 });
 
 test('should default cwd to config directory', async ({ runInlineTest }, testInfo) => {