diff --git a/packages/compiler-cli/src/perform_compile.ts b/packages/compiler-cli/src/perform_compile.ts
index c03201c60f7e99..49f437d80d1c91 100644
--- a/packages/compiler-cli/src/perform_compile.ts
+++ b/packages/compiler-cli/src/perform_compile.ts
@@ -128,7 +128,38 @@ export function readConfiguration(
   try {
     const {projectFile, basePath} = calcProjectFileAndBasePath(project);
 
-    let {config, error} = ts.readConfigFile(projectFile, ts.sys.readFile);
+    const readExtendedConfigFile =
+        (configFile: string, existingConfig?: any): {config?: any; error?: ts.Diagnostic;} => {
+          const {config, error} = ts.readConfigFile(configFile, ts.sys.readFile);
+
+          if (error) {
+            return {error};
+          }
+
+          // we are only interested into merging 'angularCompilerOptions' as
+          // other options like 'compilerOptions' are merged by TS
+          const baseConfig = existingConfig || config;
+          if (existingConfig) {
+            baseConfig.angularCompilerOptions = {...config.angularCompilerOptions,
+                                                 ...baseConfig.angularCompilerOptions};
+          }
+
+          if (config.extends) {
+            let extendedConfigPath = path.resolve(path.dirname(configFile), config.extends);
+            extendedConfigPath = path.extname(extendedConfigPath) ? extendedConfigPath :
+                                                                    extendedConfigPath + ".json";
+
+            if (fs.existsSync(extendedConfigPath)) {
+              // Call read config recursively as TypeScript only merged CompilerOptions
+              return readExtendedConfigFile(extendedConfigPath, baseConfig);
+            }
+
+          }
+
+          return {config: baseConfig};
+        };
+
+    const {config, error} = readExtendedConfigFile(projectFile);
 
     if (error) {
       return {
diff --git a/packages/compiler-cli/test/perform_compile.spec.ts b/packages/compiler-cli/test/perform_compile.spec.ts
new file mode 100644
index 00000000000000..70632403df0277
--- /dev/null
+++ b/packages/compiler-cli/test/perform_compile.spec.ts
@@ -0,0 +1,50 @@
+/**
+ * @license
+ * Copyright Google Inc. All Rights Reserved.
+ *
+ * Use of this source code is governed by an MIT-style license that can be
+ * found in the LICENSE file at https://angular.io/license
+ */
+
+import {readConfiguration} from '../src/perform_compile';
+
+import {TestSupport, setup} from './test_support';
+
+describe('perform_compile', () => {
+  let testSupport: TestSupport;
+
+  beforeEach(() => { testSupport = setup(); });
+
+  function writeSomeRoutes() {
+    testSupport.writeFiles({
+      'src/tsconfig-level-1.json': `
+        extends: "src/tsconfig-level-2.json",
+        angularCompilerOptions: {
+          "annotateForClosureCompiler": true
+        }
+      `,
+      'src/tsconfig-level-2.json': `
+        extends: "src/tsconfig-level-3.json",
+        angularCompilerOptions: {
+          "skipMetadataEmit": true
+        }
+      `,
+      'src/tsconfig-level-3.json': `
+        angularCompilerOptions: {
+          "annotateForClosureCompiler": false,
+          "annotationsAs": "decorators"
+        }
+      `,
+    });
+  }
+
+  it('should merge tsconfig "angularCompilerOptions"', () => {
+    writeSomeRoutes();
+    const {options} = readConfiguration('src/tsconfig-level-1.json');
+
+    expect(options.annotateForClosureCompiler).toBe(true);
+    expect(options.annotationsAs).toBe('decorators');
+    expect(options.skipMetadataEmit).toBe(false);
+  });
+
+});