diff --git a/src/binding/editDetection/arrayToDomNodeChildren.js b/src/binding/editDetection/arrayToDomNodeChildren.js
index ef2e48a3d..fc9c7c587 100644
--- a/src/binding/editDetection/arrayToDomNodeChildren.js
+++ b/src/binding/editDetection/arrayToDomNodeChildren.js
@@ -46,6 +46,7 @@
         var newMappingResult = [];
         var lastMappingResultIndex = 0;
         var nodesToDelete = [];
+        var nodesToUpdateIndex = [];
         var nodesAdded = [];
         var insertAfterNode = null;
         for (var i = 0, j = editScript.length; i < j; i++) {
@@ -57,6 +58,13 @@
                     if (dataToRetain.domNodes.length > 0)
                         insertAfterNode = dataToRetain.domNodes[dataToRetain.domNodes.length - 1];
                     lastMappingResultIndex++;
+                    for (var nodeI = 0; nodeI < dataToRetain.domNodes.length; nodeI++) {
+                        var node = dataToRetain.domNodes[nodeI];
+                        var context = ko.storedBindingContextForNode(node);
+                        if (context && context['$index']) {
+                            nodesToUpdateIndex.push({ index: context['$index'], newIndex: i});
+                        }
+                    }
                     break;
 
                 case "deleted":
@@ -125,6 +133,10 @@
 
         // Store a copy of the array items we just considered so we can difference it next time
         ko.utils.domData.set(domNode, lastMappingResultDomDataKey, newMappingResult);
+
+        ko.utils.arrayForEach(nodesToUpdateIndex, function(obj) {
+            obj.index(obj.newIndex);
+        });
     }
 })();
 
diff --git a/src/templating/templating.js b/src/templating/templating.js
index 37a0659c0..80403584b 100644
--- a/src/templating/templating.js
+++ b/src/templating/templating.js
@@ -119,7 +119,7 @@
     ko.renderTemplateForEach = function (template, arrayOrObservableArray, options, targetNode, parentBindingContext) {   
         var createInnerBindingContext = function(arrayValue, index) {
             var result = parentBindingContext.createChildContext(ko.utils.unwrapObservable(arrayValue));
-            result['$index'] = index;
+            result['$index'] = ko.observable(index);
             return result;
         };