diff --git a/packages/playwright/src/runner/rebase.ts b/packages/playwright/src/runner/rebase.ts
index bc59e8374a..780735499b 100644
--- a/packages/playwright/src/runner/rebase.ts
+++ b/packages/playwright/src/runner/rebase.ts
@@ -54,6 +54,7 @@ export async function applySuggestedRebaselines(config: FullConfigInternal, repo
 
   const patches: string[] = [];
   const files: string[] = [];
+  const gitCache = new Map<string, string | null>();
 
   for (const fileName of [...suggestedRebaselines.keys()].sort()) {
     const source = await fs.promises.readFile(fileName, 'utf8');
@@ -96,7 +97,8 @@ export async function applySuggestedRebaselines(config: FullConfigInternal, repo
     for (const range of ranges)
       result = result.substring(0, range.start) + range.newText + result.substring(range.end);
 
-    const relativeName = path.relative(process.cwd(), fileName);
+    const gitFolder = findGitRoot(path.dirname(fileName), gitCache);
+    const relativeName = path.relative(gitFolder || process.cwd(), fileName);
     files.push(relativeName);
     patches.push(createPatch(relativeName, source, result));
   }
@@ -119,3 +121,25 @@ function createPatch(fileName: string, before: string, after: string) {
     ...text.split('\n').slice(4)
   ].join('\n');
 }
+
+function findGitRoot(dir: string, cache: Map<string, string | null>): string | null {
+  const result = cache.get(dir);
+  if (result !== undefined)
+    return result;
+
+  const gitPath = path.join(dir, '.git');
+  if (fs.existsSync(gitPath) && fs.lstatSync(gitPath).isDirectory()) {
+    cache.set(dir, dir);
+    return dir;
+  }
+
+  const parentDir = path.dirname(dir);
+  if (dir === parentDir) {
+    cache.set(dir, null);
+    return null;
+  }
+
+  const parentResult = findGitRoot(parentDir, cache);
+  cache.set(dir, parentResult);
+  return parentResult;
+}
diff --git a/tests/playwright-test/update-aria-snapshot.spec.ts b/tests/playwright-test/update-aria-snapshot.spec.ts
index 63769f8408..f7bc744561 100644
--- a/tests/playwright-test/update-aria-snapshot.spec.ts
+++ b/tests/playwright-test/update-aria-snapshot.spec.ts
@@ -26,6 +26,7 @@ function trimPatch(patch: string) {
 
 test('should update snapshot with the update-snapshots flag with multiple projects', async ({ runInlineTest }, testInfo) => {
   const result = await runInlineTest({
+    '.git/marker': '',
     'playwright.config.ts': `
       export default { projects: [{ name: 'p1' }, { name: 'p2' }] };
     `,
@@ -73,6 +74,7 @@ test('should update snapshot with the update-snapshots flag with multiple projec
 
 test('should update missing snapshots', async ({ runInlineTest }, testInfo) => {
   const result = await runInlineTest({
+    '.git/marker': '',
     'a.spec.ts': `
       import { test, expect } from '@playwright/test';
       test('test', async ({ page }) => {
@@ -116,6 +118,7 @@ test('should update missing snapshots', async ({ runInlineTest }, testInfo) => {
 
 test('should generate baseline with regex', async ({ runInlineTest }, testInfo) => {
   const result = await runInlineTest({
+    '.git/marker': '',
     'a.spec.ts': `
       import { test, expect } from '@playwright/test';
       test('test', async ({ page }) => {
@@ -172,6 +175,7 @@ test('should generate baseline with regex', async ({ runInlineTest }, testInfo)
 
 test('should generate baseline with special characters', async ({ runInlineTest }, testInfo) => {
   const result = await runInlineTest({
+    '.git/marker': '',
     'a.spec.ts': `
       import { test, expect } from '@playwright/test';
       test('test', async ({ page }) => {
@@ -241,6 +245,7 @@ test('should generate baseline with special characters', async ({ runInlineTest
 
 test('should update missing snapshots in tsx', async ({ runInlineTest }, testInfo) => {
   const result = await runInlineTest({
+    '.git/marker': '',
     'playwright.config.ts': playwrightCtConfigText,
     'playwright/index.html': `<script type="module" src="./index.ts"></script>`,
     'playwright/index.ts': ``,
@@ -286,6 +291,7 @@ test('should update missing snapshots in tsx', async ({ runInlineTest }, testInf
 
 test('should update multiple files', async ({ runInlineTest }, testInfo) => {
   const result = await runInlineTest({
+    '.git/marker': '',
     'playwright.config.ts': playwrightCtConfigText,
     'playwright/index.html': `<script type="module" src="./index.ts"></script>`,
     'playwright/index.ts': ``,
@@ -365,6 +371,7 @@ diff --git a/src/button-2.test.tsx b/src/button-2.test.tsx
 
 test('should generate baseline for input values', async ({ runInlineTest }, testInfo) => {
   const result = await runInlineTest({
+    '.git/marker': '',
     'a.spec.ts': `
       import { test, expect } from '@playwright/test';
       test('test', async ({ page }) => {
@@ -400,6 +407,7 @@ test('should generate baseline for input values', async ({ runInlineTest }, test
 
 test('should not update snapshots when locator did not match', async ({ runInlineTest }, testInfo) => {
   const result = await runInlineTest({
+    '.git/marker': '',
     'a.spec.ts': `
       import { test, expect } from '@playwright/test';
       test('test', async ({ page }) => {