diff --git a/Dockerfile.gaia b/Dockerfile.gaia
index 20d013560f..c30d4ec662 100644
--- a/Dockerfile.gaia
+++ b/Dockerfile.gaia
@@ -1,7 +1,8 @@
 # syntax=docker/dockerfile:1
 
 # build latest tagged gaia
-FROM golang:1.18-alpine AS gaia-builder
+FROM golang:1.18-alpine AS gaia-builder 
+# WORKDIR is set to /go by default
 ARG USE_GAIA_TAG
 ENV GAIA_TAG=${USE_GAIA_TAG}
 
@@ -12,10 +13,30 @@ ENV CGO_ENABLED=0
 ENV GOOS=linux
 ENV GOFLAGS="-buildvcs=false"
 
+# Copy host machine's working directory into the container under /interchain-security
+ADD . /interchain-security
+
+RUN git clone https://github.com/cosmos/gaia.git
+WORKDIR /go/gaia
+
 # fetch gaia from tag and build it
-RUN if [  -z ${GAIA_TAG} ] ; then git clone https://github.com/cosmos/gaia.git && cd gaia && git checkout $(git tag | tail -1) && make build; else git clone https://github.com/cosmos/gaia.git && cd gaia && git checkout ${GAIA_TAG} && make build ; fi
+    RUN if [ -n "${GAIA_TAG}" ]; \
+        then git checkout "${GAIA_TAG}"; \
+    # if GAIA_TAG is not set, build the latest tagged version
+    else \
+        git checkout $(git tag | tail -1); \
+    fi 
+
+# Also replace sdk version in the go.mod if specified
+RUN if [ -d "/interchain-security/cosmos-sdk" ]; then \
+    go mod edit -replace github.com/cosmos/cosmos-sdk=/interchain-security/cosmos-sdk && \
+    echo "local sdk version used in gaia build"; \
+fi
 
-# if GAIA_TAG is not set, build the latest tagged version
+RUN go mod tidy
+# Print the version of the sdk used in the build
+RUN go list -m github.com/cosmos/cosmos-sdk 
+RUN make build
 
 FROM golang:1.18-alpine AS is-builder
 
@@ -31,10 +52,6 @@ ADD . /interchain-security
 
 WORKDIR /interchain-security
 
-# Do not specify version here. It leads to odd replacement behavior 
-RUN if [ -d "./cosmos-sdk" ]; then go mod edit -replace github.com/cosmos/cosmos-sdk=./cosmos-sdk; fi
-RUN go mod tidy
-
 # Install interchain security binary
 RUN make install