diff --git a/mercurial/help/config.txt b/mercurial/help/config.txt
--- a/mercurial/help/config.txt
+++ b/mercurial/help/config.txt
@@ -990,14 +990,20 @@ proxy.
 
 This section specifies behavior during merges and updates.
 
-``checkunknown``
-   Controls behavior when an unknown file on disk has the same name as a tracked
+``checkignored``
+   Controls behavior when an ignored file on disk has the same name as a tracked
    file in the changeset being merged or updated to, and has different
    contents. Options are ``abort``, ``warn`` and ``ignore``. With ``abort``,
    abort on such files. With ``warn``, warn on such files and back them up as
    .orig. With ``ignore``, don't print a warning and back them up as
    .orig. (default: ``abort``)
 
+``checkunknown``
+   Controls behavior when an unknown file that isn't ignored has the same name
+   as a tracked file in the changeset being merged or updated to, and has
+   different contents. Similar to ``merge.checkignored``, except for files that
+   are not ignored. (default: ``abort``)
+
 ``merge-patterns``
 ------------------
 
diff --git a/mercurial/merge.py b/mercurial/merge.py
--- a/mercurial/merge.py
+++ b/mercurial/merge.py
@@ -591,7 +591,8 @@ def _checkunknownfiles(repo, wctx, mctx,
             elif config == 'warn':
                 warnconflicts.update(conflicts)
 
-        config = _getcheckunknownconfig(repo, 'merge', 'checkunknown')
+        unknownconfig = _getcheckunknownconfig(repo, 'merge', 'checkunknown')
+        ignoredconfig = _getcheckunknownconfig(repo, 'merge', 'checkignored')
         for f, (m, args, msg) in actions.iteritems():
             if m in ('c', 'dc'):
                 if _checkunknownfile(repo, wctx, mctx, f):
@@ -600,7 +601,11 @@ def _checkunknownfiles(repo, wctx, mctx,
                 if _checkunknownfile(repo, wctx, mctx, f, args[0]):
                     conflicts.add(f)
 
-        collectconflicts(conflicts, config)
+        ignoredconflicts = set([c for c in conflicts
+                                if repo.dirstate._ignore(c)])
+        unknownconflicts = conflicts - ignoredconflicts
+        collectconflicts(ignoredconflicts, ignoredconfig)
+        collectconflicts(unknownconflicts, unknownconfig)
         for f in sorted(abortconflicts):
             repo.ui.warn(_("%s: untracked file differs\n") % f)
         if abortconflicts:
diff --git a/tests/test-merge1.t b/tests/test-merge1.t
--- a/tests/test-merge1.t
+++ b/tests/test-merge1.t
@@ -152,10 +152,78 @@ this merge should silently ignore
   1 files updated, 0 files merged, 0 files removed, 0 files unresolved
   (branch merge, don't forget to commit)
 
+merge.checkignored
+  $ hg up --clean 1
+  1 files updated, 0 files merged, 1 files removed, 0 files unresolved
+  $ cat >> .hgignore << EOF
+  > remoteignored
+  > EOF
+  $ echo This is file localignored3 > localignored
+  $ echo This is file remoteignored3 > remoteignored
+  $ hg add .hgignore localignored remoteignored
+  $ hg commit -m "commit #3"
+
+  $ hg up 2
+  1 files updated, 0 files merged, 4 files removed, 0 files unresolved
+  $ cat >> .hgignore << EOF
+  > localignored
+  > EOF
+  $ hg add .hgignore
+  $ hg commit -m "commit #4"
+
+remote .hgignore shouldn't be used for determining whether a file is ignored
+  $ echo This is file remoteignored4 > remoteignored
+  $ hg merge 3 --config merge.checkignored=ignore --config merge.checkunknown=abort
+  remoteignored: untracked file differs
+  abort: untracked files in working directory differ from files in requested revision
+  [255]
+  $ hg merge 3 --config merge.checkignored=abort --config merge.checkunknown=ignore
+  merging .hgignore
+  merging for .hgignore
+  3 files updated, 1 files merged, 0 files removed, 0 files unresolved
+  (branch merge, don't forget to commit)
+  $ cat remoteignored
+  This is file remoteignored3
+  $ cat remoteignored.orig
+  This is file remoteignored4
+  $ rm remoteignored.orig
+
+local .hgignore should be used for that
+  $ hg up --clean 4
+  1 files updated, 0 files merged, 3 files removed, 0 files unresolved
+  $ echo This is file localignored4 > localignored
+also test other conflicting files to see we output the full set of warnings
+  $ echo This is file b2 > b
+  $ hg merge 3 --config merge.checkignored=abort --config merge.checkunknown=abort
+  b: untracked file differs
+  localignored: untracked file differs
+  abort: untracked files in working directory differ from files in requested revision
+  [255]
+  $ hg merge 3 --config merge.checkignored=abort --config merge.checkunknown=ignore
+  localignored: untracked file differs
+  abort: untracked files in working directory differ from files in requested revision
+  [255]
+  $ hg merge 3 --config merge.checkignored=warn --config merge.checkunknown=abort
+  b: untracked file differs
+  abort: untracked files in working directory differ from files in requested revision
+  [255]
+  $ hg merge 3 --config merge.checkignored=warn --config merge.checkunknown=warn
+  b: replacing untracked file
+  localignored: replacing untracked file
+  merging .hgignore
+  merging for .hgignore
+  3 files updated, 1 files merged, 0 files removed, 0 files unresolved
+  (branch merge, don't forget to commit)
+  $ cat localignored
+  This is file localignored3
+  $ cat localignored.orig
+  This is file localignored4
+  $ rm localignored.orig
+
   $ cat b.orig
   This is file b2
   $ hg up --clean 2
-  0 files updated, 0 files merged, 1 files removed, 0 files unresolved
+  0 files updated, 0 files merged, 4 files removed, 0 files unresolved
   $ mv b.orig b
 
 this merge of b should work