diff --git a/mercurial/merge.py b/mercurial/merge.py
--- a/mercurial/merge.py
+++ b/mercurial/merge.py
@@ -786,7 +786,7 @@ def driverconclude(repo, ms, wctx, label
     return True
 
 def manifestmerge(repo, wctx, p2, pa, branchmerge, force, matcher,
-                  acceptremote, followcopies):
+                  acceptremote, followcopies, forcefulldiff=False):
     """
     Merge wctx and p2 with ancestor pa and generate merge action list
 
@@ -821,6 +821,26 @@ def manifestmerge(repo, wctx, p2, pa, br
         if any(wctx.sub(s).dirty() for s in wctx.substate):
             m1['.hgsubstate'] = modifiednodeid
 
+    # Don't use m2-vs-ma optimization if:
+    # - ma is the same as m1 or m2, which we're just going to diff again later
+    # - The matcher is set already, so we can't override it
+    # - The caller specifically asks for a full diff, which is useful during bid
+    #   merge.
+    if (pa not in ([wctx, p2] + wctx.parents()) and
+        matcher is None and not forcefulldiff):
+        # Identify which files are relevant to the merge, so we can limit the
+        # total m1-vs-m2 diff to just those files. This has significant
+        # performance benefits in large repositories.
+        relevantfiles = set(ma.diff(m2).keys())
+
+        # For copied and moved files, we need to add the source file too.
+        for copykey, copyvalue in copy.iteritems():
+            if copyvalue in relevantfiles:
+                relevantfiles.add(copykey)
+        for movedirkey in movewithdir.iterkeys():
+            relevantfiles.add(movedirkey)
+        matcher = scmutil.matchfiles(repo, relevantfiles)
+
     diff = m1.diff(m2, match=matcher)
 
     if matcher is None:
@@ -974,7 +994,7 @@ def calculateupdates(repo, wctx, mctx, a
             repo.ui.note(_('\ncalculating bids for ancestor %s\n') % ancestor)
             actions, diverge1, renamedelete1 = manifestmerge(
                 repo, wctx, mctx, ancestor, branchmerge, force, matcher,
-                acceptremote, followcopies)
+                acceptremote, followcopies, forcefulldiff=True)
             _checkunknownfiles(repo, wctx, mctx, force, actions, mergeforce)
 
             # Track the shortest set of warning on the theory that bid
diff --git a/tests/test-graft.t b/tests/test-graft.t
--- a/tests/test-graft.t
+++ b/tests/test-graft.t
@@ -186,7 +186,6 @@ Graft out of order, skipping a merge and
    ancestor: 4c60f11aa304, local: 6b9e5368ca4e+, remote: 97f8bfe72746
    e: remote is newer -> g
   getting e
-   b: remote unchanged -> k
   committing files:
   e
   committing manifest
@@ -203,7 +202,6 @@ Graft out of order, skipping a merge and
    preserving e for resolve of e
    d: remote is newer -> g
   getting d
-   b: remote unchanged -> k
    e: versions differ -> m (premerge)
   picked tool ':merge' for e (binary False symlink False changedelete False)
   merging e
diff --git a/tests/test-issue672.t b/tests/test-issue672.t
--- a/tests/test-issue672.t
+++ b/tests/test-issue672.t
@@ -38,7 +38,6 @@ https://bz.mercurial-scm.org/672
   removing 1
    1a: remote created -> g
   getting 1a
-   2: remote unchanged -> k
   1 files updated, 0 files merged, 1 files removed, 0 files unresolved
   (branch merge, don't forget to commit)
 
diff --git a/tests/test-rename-merge2.t b/tests/test-rename-merge2.t
--- a/tests/test-rename-merge2.t
+++ b/tests/test-rename-merge2.t
@@ -89,7 +89,6 @@ args:
    preserving a for resolve of b
    preserving rev for resolve of rev
   starting 4 threads for background file closing (?)
-   a: remote unchanged -> k
    b: remote copied from a -> m (premerge)
   picked tool 'python ../merge' for b (binary False symlink False changedelete False)
   merging a and b to b
@@ -652,7 +651,6 @@ m "um a c" "um x c" "      " "10 do merg
    preserving b for resolve of b
    preserving rev for resolve of rev
   starting 4 threads for background file closing (?)
-   a: remote unchanged -> k
    b: both created -> m (premerge)
   picked tool 'python ../merge' for b (binary False symlink False changedelete False)
   merging b