diff --git a/cabal-install/src/Distribution/Client/CmdInstall.hs b/cabal-install/src/Distribution/Client/CmdInstall.hs
index cd1254b5fe1..c974e9511a3 100644
--- a/cabal-install/src/Distribution/Client/CmdInstall.hs
+++ b/cabal-install/src/Distribution/Client/CmdInstall.hs
@@ -430,10 +430,12 @@ installAction flags@NixStyleFlags { extraFlags = clientInstallFlags', .. } targe
     configFlags' = disableTestsBenchsByDefault configFlags
     verbosity = fromFlagOrDefault normal (configVerbosity configFlags')
     ignoreProject = flagIgnoreProject projectFlags
-    cliConfig = commandLineFlagsToProjectConfig
+    baseCliConfig = commandLineFlagsToProjectConfig
                   globalFlags
                   flags { configFlags = configFlags' }
                   clientInstallFlags'
+    -- Ignore the local/remote distinction for the install command: #8637
+    cliConfig = baseCliConfig { projectConfigAllPackages = projectConfigLocalPackages baseCliConfig }
     globalConfigFlag = projectConfigConfigFile (projectConfigShared cliConfig)
 
 -- | Verify that invalid config options were not passed to the install command.
diff --git a/changelog.d/issue-8637 b/changelog.d/issue-8637
new file mode 100644
index 00000000000..fa176d2b0ae
--- /dev/null
+++ b/changelog.d/issue-8637
@@ -0,0 +1,13 @@
+synopsis: Apply command line flags to install packages
+packages: cabal-install
+prs: #
+issues: #8637
+
+description: {
+
+- Command line flags usually only apply to "local" packages (packages specified
+  in the cabal.project). This change causes the v2-install command to ignore
+  that distinction to better match the expected behavior for packages specified
+  directly in the command.
+
+}