diff --git a/scala/private/resources.bzl b/scala/private/resources.bzl
index f0e47bcc7..cb457fa3d 100644
--- a/scala/private/resources.bzl
+++ b/scala/private/resources.bzl
@@ -14,7 +14,7 @@ def paths(resources, resource_strip_prefix):
     return [(_target_path(resource, resource_strip_prefix), resource.path) for resource in resources]
 
 def _target_path(resource, resource_strip_prefix):
-    path = _target_path_by_strip_prefix(resource, resource_strip_prefix) if resource_strip_prefix else _target_path_by_default_prefixes(resource.path)
+    path = _target_path_by_strip_prefix(resource, resource_strip_prefix) if resource_strip_prefix else _target_path_by_default_prefixes(resource)
     return _strip_prefix(path, "/")
 
 def _target_path_by_strip_prefix(resource, resource_strip_prefix):
@@ -31,7 +31,9 @@ def _target_path_by_strip_prefix(resource, resource_strip_prefix):
         fail("Resource file %s is not under the specified prefix %s to strip" % (path, prefix))
     return path[len(prefix):]
 
-def _target_path_by_default_prefixes(path):
+def _target_path_by_default_prefixes(resource):
+    path = resource.path
+
     #  Here we are looking to find out the offset of this resource inside
     #  any resources folder. We want to return the root to the resources folder
     #  and then the sub path inside it
@@ -44,7 +46,11 @@ def _target_path_by_default_prefixes(path):
     if rel_path:
         return rel_path
 
-    return path
+    # Both short_path and path have quirks we wish to avoid, in short_path there are times where
+    # it is prefixed by `../` instead of `external/`. And in .path it will instead return the entire
+    # bazel-out/... path, which is also wanting to be avoided. So instead, we return the short-path if
+    # path starts with bazel-out and the entire path if it does not.
+    return resource.short_path if path.startswith("bazel-out") else path
 
 def _strip_prefix(path, prefix):
     return path[len(prefix):] if path.startswith(prefix) else path
diff --git a/test/BUILD b/test/BUILD
index c3b66f4ee..5ff5302c1 100644
--- a/test/BUILD
+++ b/test/BUILD
@@ -755,3 +755,15 @@ scala_junit_test(
     tests_from = [":JunitMixedSeparateTarget"],
     runtime_deps = [":JunitMixedSeparateTarget"],
 )
+
+py_binary(
+    name = "py_resource_binary",
+    srcs = ["py_resource.py"],
+    main = "py_resource.py",
+)
+
+scala_test(
+    name = "ScalaTestResourcesFromLocalTargetTest",
+    srcs = ["ScalaTestResourcesFromLocalTargetTest.scala"],
+    resources = [":py_resource_binary"],
+)
diff --git a/test/ScalaTestResourcesFromLocalTargetTest.scala b/test/ScalaTestResourcesFromLocalTargetTest.scala
new file mode 100644
index 000000000..717e4dae9
--- /dev/null
+++ b/test/ScalaTestResourcesFromLocalTargetTest.scala
@@ -0,0 +1,9 @@
+package scalarules.test
+
+class ScalaTestResourcesFromLocalTargetTest extends org.scalatest.FlatSpec {
+  "scala_test's resources when referencing local target" should 
+    "assert that local target is not placed in bazel-out, but rather next to the packaged code" in {
+      assert(getClass.getResource("/bazel-out/darwin-fastbuild/bin/test/py_resource_binary") == null)
+      assert(getClass.getResource("/test/py_resource_binary") != null)
+    }
+}
\ No newline at end of file
diff --git a/test/py_resource.py b/test/py_resource.py
new file mode 100644
index 000000000..5cb928578
--- /dev/null
+++ b/test/py_resource.py
@@ -0,0 +1 @@
+# Empty file just need to be used for reference
\ No newline at end of file