diff --git a/hgext/transplant.py b/hgext/transplant.py
--- a/hgext/transplant.py
+++ b/hgext/transplant.py
@@ -154,7 +154,7 @@ class transplanter(object):
                     # transplants before them fail.
                     domerge = True
                     if not hasnode(repo, node):
-                        repo.pull(source, heads=[node])
+                        repo.pull(source.peer(), heads=[node])
 
                 skipmerge = False
                 if parents[1] != revlog.nullid:
diff --git a/tests/test-transplant.t b/tests/test-transplant.t
--- a/tests/test-transplant.t
+++ b/tests/test-transplant.t
@@ -430,6 +430,20 @@ test transplant into empty repository
   adding manifests
   adding file changes
   added 4 changesets with 4 changes to 4 files
+
+test "--merge" causing pull from source repository on local host
+
+  $ hg --config extensions.mq= -q strip 2
+  $ hg transplant -s ../t --merge tip
+  searching for changes
+  searching for changes
+  adding changesets
+  adding manifests
+  adding file changes
+  added 2 changesets with 2 changes to 2 files
+  applying a53251cdf717
+  4:a53251cdf717 merged at 4831f4dc831a
+
   $ cd ..