diff --git a/packages/language-server/src/plugins/typescript/service.ts b/packages/language-server/src/plugins/typescript/service.ts
index c24b84b52..ec26770b8 100644
--- a/packages/language-server/src/plugins/typescript/service.ts
+++ b/packages/language-server/src/plugins/typescript/service.ts
@@ -48,6 +48,7 @@ const serviceSizeMap = new FileMap<number>();
 const configWatchers = new FileMap<ts.FileWatcher>();
 const extendedConfigWatchers = new FileMap<ts.FileWatcher>();
 const extendedConfigToTsConfigPath = new FileMap<FileSet>();
+const configFileForOpenFiles = new FileMap<string>();
 const pendingReloads = new FileSet();
 
 /**
@@ -81,24 +82,32 @@ export async function getService(
         docContext.tsSystem.useCaseSensitiveFileNames
     );
 
-    const tsconfigPath = findTsConfigPath(
-        path,
-        workspaceUris,
-        docContext.tsSystem.fileExists,
-        getCanonicalFileName
-    );
+    const tsconfigPath =
+        configFileForOpenFiles.get(path) ??
+        findTsConfigPath(path, workspaceUris, docContext.tsSystem.fileExists, getCanonicalFileName);
 
     if (tsconfigPath) {
+        configFileForOpenFiles.set(path, tsconfigPath);
         return getServiceForTsconfig(tsconfigPath, dirname(tsconfigPath), docContext);
     }
 
+    // Find closer boundary: workspace uri or node_modules
     const nearestWorkspaceUri = workspaceUris.find((workspaceUri) =>
         isSubPath(workspaceUri, path, getCanonicalFileName)
     );
+    const lastNodeModulesIdx = path.split('/').lastIndexOf('node_modules') + 2;
+    const nearestNodeModulesBoundary =
+        lastNodeModulesIdx === 1
+            ? undefined
+            : path.split('/').slice(0, lastNodeModulesIdx).join('/');
+    const nearestBoundary =
+        (nearestNodeModulesBoundary?.length ?? 0) > (nearestWorkspaceUri?.length ?? 0)
+            ? nearestNodeModulesBoundary
+            : nearestWorkspaceUri;
 
     return getServiceForTsconfig(
         tsconfigPath,
-        (nearestWorkspaceUri && urlToPath(nearestWorkspaceUri)) ??
+        (nearestBoundary && urlToPath(nearestBoundary)) ??
             docContext.tsSystem.getCurrentDirectory(),
         docContext
     );
@@ -243,6 +252,7 @@ async function createLanguageService(
     function deleteSnapshot(filePath: string): void {
         svelteModuleLoader.deleteFromModuleCache(filePath);
         snapshotManager.delete(filePath);
+        configFileForOpenFiles.delete(filePath);
     }
 
     function updateSnapshot(documentOrFilePath: Document | string): DocumentSnapshot {
@@ -517,6 +527,7 @@ async function createLanguageService(
         snapshotManager.dispose();
         configWatchers.get(tsconfigPath)?.close();
         configWatchers.delete(tsconfigPath);
+        configFileForOpenFiles.clear();
         docContext.globalSnapshotsManager.removeChangeListener(onSnapshotChange);
     }
 
@@ -565,6 +576,7 @@ async function createLanguageService(
             scheduleReload(fileName);
         } else if (kind === ts.FileWatcherEventKind.Deleted) {
             services.delete(fileName);
+            configFileForOpenFiles.clear();
         }
 
         docContext.onProjectReloaded?.();
diff --git a/packages/language-server/src/plugins/typescript/utils.ts b/packages/language-server/src/plugins/typescript/utils.ts
index ac42209aa..f67acc6cf 100644
--- a/packages/language-server/src/plugins/typescript/utils.ts
+++ b/packages/language-server/src/plugins/typescript/utils.ts
@@ -132,13 +132,19 @@ export function findTsConfigPath(
 ) {
     const searchDir = dirname(fileName);
 
-    const path =
-        ts.findConfigFile(searchDir, fileExists, 'tsconfig.json') ||
-        ts.findConfigFile(searchDir, fileExists, 'jsconfig.json') ||
-        '';
-    // Don't return config files that exceed the current workspace context.
-    return !!path && rootUris.some((rootUri) => isSubPath(rootUri, path, getCanonicalFileName))
-        ? path
+    const tsconfig = ts.findConfigFile(searchDir, fileExists, 'tsconfig.json') || '';
+    const jsconfig = ts.findConfigFile(searchDir, fileExists, 'jsconfig.json') || '';
+    // Prefer closest config file
+    const config = tsconfig.length >= jsconfig.length ? tsconfig : jsconfig;
+
+    // Don't return config files that exceed the current workspace context or cross a node_modules folder
+    return !!config &&
+        rootUris.some((rootUri) => isSubPath(rootUri, config, getCanonicalFileName)) &&
+        !fileName
+            .substring(config.length - 13)
+            .split('/')
+            .includes('node_modules')
+        ? config
         : '';
 }