diff --git a/lib/classes/PluginManager.js b/lib/classes/PluginManager.js
index 619b1f2477c2..12d1bd85805d 100644
--- a/lib/classes/PluginManager.js
+++ b/lib/classes/PluginManager.js
@@ -163,27 +163,64 @@ class PluginManager {
     return require('@serverless/enterprise-plugin');
   }
 
-  parsePluginsObject(servicePlugs) {
-    let localPath =
+  getModules(servicePlugs) {
+    if (Array.isArray(servicePlugs)) {
+      return servicePlugs;
+    }
+    if (servicePlugs && Array.isArray(servicePlugs.modules)) {
+      return servicePlugs.modules;
+    }
+
+    return [];
+  }
+
+  getLocalPath(servicePlugs) {
+    return this.getCustomLocalPath(servicePlugs) || this.getDefaultLocalPath();
+  }
+
+  getDefaultLocalPath() {
+    return (
       this.serverless &&
       this.serverless.config &&
       this.serverless.config.servicePath &&
-      path.join(this.serverless.config.servicePath, '.serverless_plugins');
-    let modules = [];
+      path.join(this.serverless.config.servicePath, '.serverless_plugins')
+    );
+  }
 
-    if (Array.isArray(servicePlugs)) {
-      modules = servicePlugs;
-    } else if (servicePlugs) {
-      localPath =
-        servicePlugs.localPath && typeof servicePlugs.localPath === 'string'
-          ? servicePlugs.localPath
-          : localPath;
-      if (Array.isArray(servicePlugs.modules)) {
-        modules = servicePlugs.modules;
-      }
+  getCustomLocalPath(servicePlugs) {
+    return servicePlugs && servicePlugs.localPath && typeof servicePlugs.localPath === 'string';
+  }
+
+  parsePluginsObject(servicePlugs) {
+    return { modules: this.getModules(servicePlugs), localPath: this.getLocalPath(servicePlugs) };
+  }
+
+  getLocalPluginsPaths(servicePlugs) {
+    const localPluginsPaths = [];
+
+    // Adding custom local path if provided
+    //
+    // plugins:
+    //   localPath: './myPluginPath'
+    //   modules: ['Plugin1']
+    const customLocalPath = this.getCustomLocalPath(servicePlugs);
+    if (customLocalPath) {
+      localPluginsPaths.push(customLocalPath);
     }
 
-    return { modules, localPath };
+    // Adding plugins with relative path references
+    //
+    // plugins: ['./myPluginDir/Plugin1']
+    //
+    // OR
+    //
+    // plugins:
+    //   localPath: './myPluginPath'
+    //   modules: ['Plugin1', './myPluginDir/Plugin2'] -> Plugin2 does not use localPath like Plugin1
+    localPluginsPaths.push(...this.getModules(servicePlugs).filter(name => name.startsWith('./')));
+
+    // Plugins loaded from .serverless_plugins folder are not compiled within this method
+    return localPluginsPaths;
   }
 
   createCommandAlias(alias, command) {
diff --git a/lib/classes/PluginManager.test.js b/lib/classes/PluginManager.test.js
index a676d69f6226..7d3495e49281 100644
--- a/lib/classes/PluginManager.test.js
+++ b/lib/classes/PluginManager.test.js
@@ -839,6 +839,37 @@ describe('PluginManager', () => {
     });
   });
 
+  describe('#getLocalPluginsPaths()', () => {
+    it('should return empty array without any plugins', () => {
+      const servicePlugins = {};
+      expect(pluginManager.getLocalPluginsPaths(servicePlugins)).to.deep.equal([]);
+    });
+
+    it('should return path of all plugins with relative paths', () => {
+      const servicePlugins = [
+        './sub/directory/Plugin1',
+        './sub/other/directory/Plugin2',
+        'Plugin3',
+      ];
+      expect(pluginManager.getLocalPluginsPaths(servicePlugins)).to.deep.equal([
+        './sub/directory/Plugin1',
+        './sub/other/directory/Plugin2',
+      ]);
+    });
+
+    it('should return path of all plugins with relative paths when localPath override is provided', () => {
+      const servicePlugins = {
+        localPath: './myPluginDirectory',
+        modules: ['./sub/directory/Plugin1', './sub/other/directory/Plugin2', 'Plugin3'],
+      };
+      expect(pluginManager.getLocalPluginsPaths(servicePlugins)).to.deep.equal([
+        './myPluginDirectory',
+        './sub/directory/Plugin1',
+        './sub/other/directory/Plugin2',
+      ]);
+    });
+  });
+
   describe('command aliases', () => {
     describe('#getAliasCommandTarget', () => {
       it('should return an alias target', () => {
diff --git a/lib/plugins/package/lib/packageService.js b/lib/plugins/package/lib/packageService.js
index 22d50091963a..ec722065064f 100644
--- a/lib/plugins/package/lib/packageService.js
+++ b/lib/plugins/package/lib/packageService.js
@@ -33,11 +33,10 @@ module.exports = {
       .getServerlessConfigFilePath(this.serverless)
       .then(configFilePath => {
         const packageExcludes = this.serverless.service.package.exclude || [];
-        // add local service plugins Path
-        const pluginsLocalPath = this.serverless.pluginManager.parsePluginsObject(
-          this.serverless.service.plugins
-        ).localPath;
-        const localPathExcludes = pluginsLocalPath ? [pluginsLocalPath] : [];
+        // add local service plugins Paths
+        const pluginsLocalPaths = this.serverless.pluginManager
+          .getLocalPluginsPaths(this.serverless.service.plugins)
+          .map(pluginsLocalPath => `${pluginsLocalPath}/**`);
         // add layer paths
         const layerExcludes = excludeLayers
           ? this.serverless.service
@@ -51,7 +50,7 @@ module.exports = {
         return _.union(
           this.defaultExcludes,
           serverlessConfigFileExclude,
-          localPathExcludes,
+          pluginsLocalPaths,
           packageExcludes,
           layerExcludes,
           exclude
diff --git a/lib/plugins/package/lib/packageService.test.js b/lib/plugins/package/lib/packageService.test.js
index d731cc6c0094..32af7ca0766b 100644
--- a/lib/plugins/package/lib/packageService.test.js
+++ b/lib/plugins/package/lib/packageService.test.js
@@ -90,7 +90,37 @@ describe('#packageService()', () => {
 
       return expect(packagePlugin.getExcludes()).to.be.fulfilled.then(exclude =>
         expect(exclude).to.deep.equal(
-          _.union(packagePlugin.defaultExcludes, [serverlessConfigFileName], [localPath])
+          _.union(packagePlugin.defaultExcludes, [serverlessConfigFileName], [`${localPath}/**`])
+        )
+      );
+    });
+
+    it('should exclude plugins local paths', () => {
+      serverless.service.plugins = ['./sub/directory/myPlugin'];
+
+      return expect(packagePlugin.getExcludes()).to.be.fulfilled.then(exclude =>
+        expect(exclude).to.deep.equal(
+          _.union(
+            packagePlugin.defaultExcludes,
+            [serverlessConfigFileName],
+            ['./sub/directory/myPlugin/**']
+          )
+        )
+      );
+    });
+
+    it('should exclude lugins localPath defaults and plugins local paths', () => {
+      const localPath = './myplugins';
+      serverless.service.plugins = { localPath, modules: ['Plugin', './sub/directory/myPlugin'] };
+
+      return expect(packagePlugin.getExcludes()).to.be.fulfilled.then(exclude =>
+        expect(exclude).to.deep.equal(
+          _.union(
+            packagePlugin.defaultExcludes,
+            [serverlessConfigFileName],
+            [`${localPath}/**`],
+            ['./sub/directory/myPlugin/**']
+          )
         )
       );
     });
@@ -137,7 +167,7 @@ describe('#packageService()', () => {
           _.union(
             packagePlugin.defaultExcludes,
             [serverlessConfigFileName],
-            [localPath],
+            [`${localPath}/**`],
             packageExcludes
           )
         )
@@ -158,7 +188,7 @@ describe('#packageService()', () => {
           _.union(
             packagePlugin.defaultExcludes,
             [serverlessConfigFileName],
-            [localPath],
+            [`${localPath}/**`],
             packageExcludes,
             funcExcludes
           )