diff --git a/lib/install.ps1 b/lib/install.ps1
index 67f5249dfb..b87dcc8de2 100644
--- a/lib/install.ps1
+++ b/lib/install.ps1
@@ -956,8 +956,7 @@ function link_current($versiondir) {
         Remove-Item $currentdir -Recurse -Force -ErrorAction Stop
     }
 
-    New-Item -Path $currentdir -ItemType Junction -Value $versiondir | Out-Null
-    attrib $currentdir +R /L
+    New-DirectoryJunction($currentdir, $versiondir)
     return $currentdir
 }
 
@@ -1207,8 +1206,7 @@ function persist_data($manifest, $original_dir, $persist_dir) {
             # create link
             if (is_directory $target) {
                 # target is a directory, create junction
-                New-Item -Path $source -ItemType Junction -Value $target | Out-Null
-                attrib $source +R /L
+                New-DirectoryJunction($source, $target)
             } else {
                 # target is a file, create hard link
                 New-Item -Path $source -ItemType HardLink -Value $target | Out-Null
@@ -1270,3 +1268,31 @@ function test_running_process($app, $global) {
         return $false
     }
 }
+
+# test if this script is being executed inside a docker container
+function Test-IsInsideContainer {
+    $foundService = Get-Service -Name cexecsvc -ErrorAction SilentlyContinue
+    if ( $foundService -eq $null ) {
+        $false
+    }
+    else {
+        $true
+    }
+}
+
+# wrapper function to create junction links
+# Required to handle docker/for-win#12240
+function New-DirectoryJunction($source, $target) {
+    if (Test-Path $target) {
+        warn "Target directory `$target` already exists."
+        return $false
+    }
+
+    if (Test-IsInsideContainer) {
+        & "$env:COMSPEC" /c "mklink /j `"$source`" `"$target`"" | out-null
+    } else {
+        New-Item -Path $source -ItemType Junction -Value $target | Out-Null
+    }
+    attrib $source +R /L
+}
+
diff --git a/lib/psmodules.ps1 b/lib/psmodules.ps1
index fc32e99425..beac908d7e 100644
--- a/lib/psmodules.ps1
+++ b/lib/psmodules.ps1
@@ -26,7 +26,7 @@ function install_psmodule($manifest, $dir, $global) {
         Remove-Item -Path $linkfrom -Force -ErrorAction SilentlyContinue
     }
 
-    New-Item -Path $linkfrom -ItemType Junction -Value $dir | Out-Null
+    New-DirectoryJunction($linkfrom, $dir)
 }
 
 function uninstall_psmodule($manifest, $dir, $global) {