diff --git a/packages/plugin-vue/src/handleHotUpdate.ts b/packages/plugin-vue/src/handleHotUpdate.ts
index f6fc455e..2b15a4e9 100644
--- a/packages/plugin-vue/src/handleHotUpdate.ts
+++ b/packages/plugin-vue/src/handleHotUpdate.ts
@@ -202,14 +202,25 @@ export function isOnlyTemplateChanged(
   )
 }
 
-function deepEqual(obj1: any, obj2: any, excludeProps: string[] = []): boolean {
+function deepEqual(
+  obj1: any,
+  obj2: any,
+  excludeProps: string[] = [],
+  deepParentsOfObj1: any[] = [],
+): boolean {
   // Check if both objects are of the same type
   if (typeof obj1 !== typeof obj2) {
     return false
   }
 
   // Check if both objects are primitive types or null
-  if (obj1 == null || obj2 == null || typeof obj1 !== 'object') {
+  // or circular reference
+  if (
+    obj1 == null ||
+    obj2 == null ||
+    typeof obj1 !== 'object' ||
+    deepParentsOfObj1.includes(obj1)
+  ) {
     return obj1 === obj2
   }
 
@@ -229,7 +240,12 @@ function deepEqual(obj1: any, obj2: any, excludeProps: string[] = []): boolean {
       continue
     }
 
-    if (!deepEqual(obj1[key], obj2[key], excludeProps)) {
+    if (
+      !deepEqual(obj1[key], obj2[key], excludeProps, [
+        ...deepParentsOfObj1,
+        obj1,
+      ])
+    ) {
       return false
     }
   }
diff --git a/playground/vue/HmrCircularReference.vue b/playground/vue/HmrCircularReference.vue
new file mode 100644
index 00000000..98dbd3f7
--- /dev/null
+++ b/playground/vue/HmrCircularReference.vue
@@ -0,0 +1,24 @@
+<template>
+  <h2 class="hmr-circular-reference">HMR Circular reference</h2>
+  <p>Click the button then edit this message. The count should be preserved.</p>
+  <button class="hmr-circular-reference-inc" @click="count++">
+    count is {{ count }}
+  </button>
+</template>
+
+<script setup lang="ts">
+import { ref } from 'vue'
+import Node from './Node.vue'
+
+defineProps<App.User>()
+
+let foo: number = 0
+
+const count = ref(foo)
+</script>
+
+<style>
+.hmr-circular-reference-inc {
+  color: red;
+}
+</style>
diff --git a/playground/vue/HmrCircularReferenceFile.d.ts b/playground/vue/HmrCircularReferenceFile.d.ts
new file mode 100644
index 00000000..ef34a5c1
--- /dev/null
+++ b/playground/vue/HmrCircularReferenceFile.d.ts
@@ -0,0 +1,8 @@
+// this file will become a TypeScope through option `script.globalTypeFiles`
+// which has a circular reference on `TypeScope._ownerScope` (issue 325)
+
+declare namespace App {
+  interface User {
+    name: string
+  }
+}
diff --git a/playground/vue/Main.vue b/playground/vue/Main.vue
index b34155e4..b29ae881 100644
--- a/playground/vue/Main.vue
+++ b/playground/vue/Main.vue
@@ -8,6 +8,7 @@
   <div class="hmr-tsx-block">
     <HmrTsx />
   </div>
+  <HmrCircularReference name="test" />
   <TypeProps msg="msg" bar="bar" :id="123" />
   <Syntax />
   <PreProcessors />
@@ -60,6 +61,7 @@ import PreCompiled from './pre-compiled/foo.vue'
 import PreCompiledExternalScoped from './pre-compiled/external-scoped.vue'
 import PreCompiledExternalCssModules from './pre-compiled/external-cssmodules.vue'
 import ParserOptions from './ParserOptions.vue'
+import HmrCircularReference from './HmrCircularReference.vue'
 
 const TsGeneric = defineAsyncComponent(() => import('./TsGeneric.vue'))
 
diff --git a/playground/vue/__tests__/vue.spec.ts b/playground/vue/__tests__/vue.spec.ts
index e5ae6e53..aa88ec19 100644
--- a/playground/vue/__tests__/vue.spec.ts
+++ b/playground/vue/__tests__/vue.spec.ts
@@ -225,6 +225,16 @@ describe('hmr', () => {
       'updatedCount is 0',
     )
   })
+
+  test('should handle circular reference (issue 325)', async () => {
+    editFile('HmrCircularReference.vue', (code) =>
+      code.replace('let foo: number = 0', 'let foo: number = 100'),
+    )
+    await untilUpdated(
+      () => page.textContent('.hmr-circular-reference-inc'),
+      'count is 100',
+    )
+  })
 })
 
 describe('src imports', () => {
diff --git a/playground/vue/vite.config.ts b/playground/vue/vite.config.ts
index 5a719cb5..7b971526 100644
--- a/playground/vue/vite.config.ts
+++ b/playground/vue/vite.config.ts
@@ -1,3 +1,4 @@
+import { resolve } from 'node:path'
 import { defineConfig, splitVendorChunkPlugin } from 'vite'
 import vuePlugin from '@vitejs/plugin-vue'
 import { vueI18nPlugin } from './CustomBlockPlugin'
@@ -11,6 +12,9 @@ export default defineConfig({
   },
   plugins: [
     vuePlugin({
+      script: {
+        globalTypeFiles: [resolve(__dirname, 'HmrCircularReferenceFile.d.ts')],
+      },
       template: {
         compilerOptions: {
           isCustomElement: (tag) => tag.startsWith('my-'),