diff --git a/.changeset/moody-bobcats-yell.md b/.changeset/moody-bobcats-yell.md
new file mode 100644
index 00000000000..c205f71e1b4
--- /dev/null
+++ b/.changeset/moody-bobcats-yell.md
@@ -0,0 +1,8 @@
+---
+"@pnpm/plugin-commands-installation": patch
+"@pnpm/plugin-commands-deploy": patch
+"@pnpm/types": patch
+"pnpm": patch
+---
+
+Ensure that the deploy target is generated in the same directory [#6858](https://github.com/pnpm/pnpm/issues/6858)
diff --git a/packages/types/src/project.ts b/packages/types/src/project.ts
index a10e172a80f..8e72604d7ec 100644
--- a/packages/types/src/project.ts
+++ b/packages/types/src/project.ts
@@ -4,6 +4,7 @@ export interface Project {
   dir: string
   manifest: ProjectManifest
   writeProjectManifest: (manifest: ProjectManifest, force?: boolean | undefined) => Promise<void>
+  modulesDir?: string
 }
 
 export type ProjectsGraph = Record<string, { dependencies: string[], package: Project }>
diff --git a/pkg-manager/plugin-commands-installation/src/install.ts b/pkg-manager/plugin-commands-installation/src/install.ts
index d9f51f4923e..e9d0e871872 100644
--- a/pkg-manager/plugin-commands-installation/src/install.ts
+++ b/pkg-manager/plugin-commands-installation/src/install.ts
@@ -250,6 +250,7 @@ export type InstallCommandOptions = Pick<Config,
 | 'bail'
 | 'bin'
 | 'cliOptions'
+| 'dedupePeerDependents'
 | 'deployAllFiles'
 | 'depth'
 | 'dev'
diff --git a/pkg-manager/plugin-commands-installation/src/recursive.ts b/pkg-manager/plugin-commands-installation/src/recursive.ts
index 95c35d3b730..f633b70be4c 100755
--- a/pkg-manager/plugin-commands-installation/src/recursive.ts
+++ b/pkg-manager/plugin-commands-installation/src/recursive.ts
@@ -520,6 +520,7 @@ function getAllProjects (manifestsByPath: ManifestsByPath, allProjectsGraph: Pro
     buildIndex,
     manifest: manifestsByPath[rootDir].manifest,
     rootDir,
+    modulesDir: allProjectsGraph[rootDir].package.modulesDir,
   }))).flat()
 }
 
diff --git a/releasing/plugin-commands-deploy/src/deploy.ts b/releasing/plugin-commands-deploy/src/deploy.ts
index d813be29624..d0b44399693 100644
--- a/releasing/plugin-commands-deploy/src/deploy.ts
+++ b/releasing/plugin-commands-deploy/src/deploy.ts
@@ -9,6 +9,7 @@ import { PnpmError } from '@pnpm/error'
 import rimraf from '@zkochan/rimraf'
 import renderHelp from 'render-help'
 import { deployHook } from './deployHook'
+import { type ProjectsGraph } from '@pnpm/types'
 
 export const shorthands = install.shorthands
 
@@ -76,6 +77,9 @@ export async function handler (
   await fs.promises.mkdir(deployDir, { recursive: true })
   const includeOnlyPackageFiles = !opts.deployAllFiles
   await copyProject(deployedDir, deployDir, { includeOnlyPackageFiles })
+  const absoluteModulesDir = path.join(deployDir, 'node_modules')
+  extendProjectModulesDir(opts.allProjectsGraph, absoluteModulesDir)
+
   await install.handler({
     ...opts,
     confirmModulesPurge: false,
@@ -91,7 +95,7 @@ export async function handler (
     preferFrozenLockfile: false,
     saveLockfile: false,
     virtualStoreDir: path.join(deployDir, 'node_modules/.pnpm'),
-    modulesDir: path.relative(deployedDir, path.join(deployDir, 'node_modules')),
+    modulesDir: path.relative(deployedDir, absoluteModulesDir),
     rawLocalConfig: {
       ...opts.rawLocalConfig,
       // This is a workaround to prevent frozen install in CI envs.
@@ -106,3 +110,11 @@ async function copyProject (src: string, dest: string, opts: { includeOnlyPackag
   const importPkg = createIndexedPkgImporter('clone-or-copy')
   await importPkg(dest, { filesMap: filesIndex, force: true, fromStore: true })
 }
+
+function extendProjectModulesDir (allProjectsGraph: ProjectsGraph | undefined, absoluteModulesDir: string) {
+  if (allProjectsGraph) {
+    Object.keys(allProjectsGraph).forEach(prefix => {
+      allProjectsGraph[prefix].package.modulesDir = path.relative(allProjectsGraph[prefix].package.dir, absoluteModulesDir)
+    })
+  }
+}
diff --git a/releasing/plugin-commands-deploy/test/deploy.test.ts b/releasing/plugin-commands-deploy/test/deploy.test.ts
index 61bb6b5f5d9..0da0e3b700b 100644
--- a/releasing/plugin-commands-deploy/test/deploy.test.ts
+++ b/releasing/plugin-commands-deploy/test/deploy.test.ts
@@ -74,3 +74,54 @@ test('deploy', async () => {
   expect(fs.existsSync('deploy/node_modules/.pnpm/file+project-3/node_modules/project-3/test.js')).toBeFalsy()
   expect(fs.existsSync('pnpm-lock.yaml')).toBeFalsy() // no changes to the lockfile are written
 })
+
+test('deploy with dedupePeerDependents true', async () => {
+  preparePackages([
+    {
+      name: 'project-1',
+      version: '1.0.0',
+      dependencies: {
+        'is-positive': '1.0.0',
+      },
+    },
+    {
+      location: './sub-dir/project-2',
+      package: {
+        name: 'project-2',
+        version: '2.0.0',
+        dependencies: {
+          'is-odd': '1.0.0',
+        },
+      },
+    },
+    {
+      name: 'project-3',
+      version: '2.0.0',
+      dependencies: {
+        'is-number': '1.0.0',
+      },
+    },
+  ])
+
+  const { allProjects, selectedProjectsGraph, allProjectsGraph } = await readProjects(process.cwd(), [{ namePattern: 'project-1' }])
+
+  await deploy.handler({
+    ...DEFAULT_OPTS,
+    allProjects,
+    allProjectsGraph,
+    dir: process.cwd(),
+    dev: false,
+    production: true,
+    recursive: true,
+    selectedProjectsGraph,
+    sharedWorkspaceLockfile: true,
+    lockfileDir: process.cwd(),
+    workspaceDir: process.cwd(),
+    dedupePeerDependents: true,
+  }, ['deploy'])
+  const project = assertProject(path.resolve('deploy'))
+  await project.has('is-positive')
+  await project.has('is-odd')
+  await project.has('is-number')
+  expect(fs.existsSync('sub-dir/deploy')).toBe(false)
+})