diff --git a/src/ng/compile.js b/src/ng/compile.js
index 9311662add37..3eb8b000e86c 100644
--- a/src/ng/compile.js
+++ b/src/ng/compile.js
@@ -1771,7 +1771,6 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
           });
           afterTemplateChildLinkFn = compileNodes($compileNode[0].childNodes, childTranscludeFn);
 
-
           while(linkQueue.length) {
             var scope = linkQueue.shift(),
                 beforeTemplateLinkNode = linkQueue.shift(),
@@ -1808,13 +1807,17 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
         });
 
       return function delayedNodeLinkFn(ignoreChildLinkFn, scope, node, rootElement, boundTranscludeFn) {
+        var childBoundTranscludeFn = boundTranscludeFn;
         if (linkQueue) {
           linkQueue.push(scope);
           linkQueue.push(node);
           linkQueue.push(rootElement);
-          linkQueue.push(boundTranscludeFn);
+          linkQueue.push(childBoundTranscludeFn);
         } else {
-          afterTemplateNodeLinkFn(afterTemplateChildLinkFn, scope, node, rootElement, boundTranscludeFn);
+          if (afterTemplateNodeLinkFn.transcludeOnThisElement) {
+            childBoundTranscludeFn = createBoundTranscludeFn(scope, afterTemplateNodeLinkFn.transclude, boundTranscludeFn);
+          }
+          afterTemplateNodeLinkFn(afterTemplateChildLinkFn, scope, node, rootElement, childBoundTranscludeFn);
         }
       };
     }
diff --git a/test/ng/compileSpec.js b/test/ng/compileSpec.js
index 9c194b0bfc9b..7f43567a6173 100755
--- a/test/ng/compileSpec.js
+++ b/test/ng/compileSpec.js
@@ -4852,6 +4852,57 @@ describe('$compile', function() {
 
       expect(element.text()).toBe('-->|x|');
     }));
+
+
+    // See https://github.com/angular/angular.js/issues/7183
+    it("should pass transclusion through to template of a 'replace' directive", function() {
+      module(function() {
+        directive('transSync', function() {
+          return {
+            transclude: true,
+            link: function(scope, element, attr, ctrl, transclude) {
+
+              expect(transclude).toEqual(jasmine.any(Function));
+
+              transclude(function(child) { element.append(child); });
+            }
+          };
+        });
+
+        directive('trans', function($timeout) {
+          return {
+            transclude: true,
+            link: function(scope, element, attrs, ctrl, transclude) {
+
+              // We use timeout here to simulate how ng-if works
+              $timeout(function()  {
+                transclude(function(child) { element.append(child); });
+              });
+            }
+          };
+        });
+
+        directive('replaceWithTemplate', function() {
+          return {
+            templateUrl: "template.html",
+            replace: true
+          };
+        });
+      });
+
+      inject(function($compile, $rootScope, $templateCache, $timeout) {
+
+        $templateCache.put('template.html', '<div trans-sync>Content To Be Transcluded</div>');
+
+        expect(function() {
+          element = $compile('<div><div trans><div replace-with-template></div></div></div>')($rootScope);
+          $timeout.flush();
+        }).not.toThrow();
+
+        expect(element.text()).toEqual('Content To Be Transcluded');
+      });
+
+    });
   });