diff --git a/merge-recursive.c b/merge-recursive.c
index d6f0582238..a3721efcaf 100644
--- a/merge-recursive.c
+++ b/merge-recursive.c
@@ -520,8 +520,12 @@ static void update_file_flags(struct merge_options *o,
 		unsigned long size;
 
 		if (S_ISGITLINK(mode))
-			die("cannot read object %s '%s': It is a submodule!",
-			    sha1_to_hex(sha), path);
+			/*
+			 * We may later decide to recursively descend into
+			 * the submodule directory and update its index
+			 * and/or work tree, but we do not do that now.
+			 */
+			goto update_index;
 
 		buf = read_sha1_file(sha, &type, &size);
 		if (!buf)
diff --git a/t/t7405-submodule-merge.sh b/t/t7405-submodule-merge.sh
index aa6c44ce4f..9a21f783d3 100755
--- a/t/t7405-submodule-merge.sh
+++ b/t/t7405-submodule-merge.sh
@@ -54,13 +54,13 @@ test_expect_success setup '
 	git merge -s ours a
 '
 
-test_expect_failure 'merging with modify/modify conflict' '
+test_expect_success 'merging with modify/modify conflict' '
 
 	git checkout -b test1 a &&
 	test_must_fail git merge b &&
 	test -f .git/MERGE_MSG &&
-	git diff
-
+	git diff &&
+	test -n "$(git ls-files -u)"
 '
 
 test_expect_success 'merging with a modify/modify conflict between merge bases' '