diff --git a/hgext/lfs/__init__.py b/hgext/lfs/__init__.py
--- a/hgext/lfs/__init__.py
+++ b/hgext/lfs/__init__.py
@@ -307,9 +307,6 @@ def extsetup(ui):
                  wrapper.upgraderequirements)
 
     wrapfunction(changegroup,
-                 'supportedoutgoingversions',
-                 wrapper.supportedoutgoingversions)
-    wrapfunction(changegroup,
                  'allsupportedversions',
                  wrapper.allsupportedversions)
 
diff --git a/hgext/lfs/wrapper.py b/hgext/lfs/wrapper.py
--- a/hgext/lfs/wrapper.py
+++ b/hgext/lfs/wrapper.py
@@ -30,14 +30,6 @@ from . import (
     pointer,
 )
 
-def supportedoutgoingversions(orig, repo):
-    versions = orig(repo)
-    if 'lfs' in repo.requirements:
-        versions.discard('01')
-        versions.discard('02')
-    versions.add('03')
-    return versions
-
 def allsupportedversions(orig, ui):
     versions = orig(ui)
     versions.add('03')
diff --git a/mercurial/changegroup.py b/mercurial/changegroup.py
--- a/mercurial/changegroup.py
+++ b/mercurial/changegroup.py
@@ -36,6 +36,8 @@ from .utils import (
 _CHANGEGROUPV2_DELTA_HEADER = "20s20s20s20s20s"
 _CHANGEGROUPV3_DELTA_HEADER = ">20s20s20s20s20sH"
 
+LFS_REQUIREMENT = 'lfs'
+
 # When narrowing is finalized and no longer subject to format changes,
 # we should move this to just "narrow" or similar.
 NARROW_REQUIREMENT = 'narrowhg-experimental'
@@ -912,6 +914,12 @@ def supportedoutgoingversions(repo):
         # support that for stripping and unbundling to work.
         versions.discard('01')
         versions.discard('02')
+    if LFS_REQUIREMENT in repo.requirements:
+        # Versions 01 and 02 don't support revlog flags, and we need to
+        # mark LFS entries with REVIDX_EXTSTORED.
+        versions.discard('01')
+        versions.discard('02')
+
     return versions
 
 def localversion(repo):