diff --git a/mercurial/merge.py b/mercurial/merge.py
--- a/mercurial/merge.py
+++ b/mercurial/merge.py
@@ -298,8 +298,7 @@ class mergestate(object):
         return r
 
 def _checkunknownfile(repo, wctx, mctx, f):
-    return (not repo.dirstate._ignore(f)
-        and os.path.isfile(repo.wjoin(f))
+    return (os.path.isfile(repo.wjoin(f))
         and repo.wopener.audit.check(f)
         and repo.dirstate.normalize(f) not in repo.dirstate
         and mctx[f].cmp(wctx[f]))
diff --git a/tests/test-up-local-change.t b/tests/test-up-local-change.t
--- a/tests/test-up-local-change.t
+++ b/tests/test-up-local-change.t
@@ -231,8 +231,6 @@ test conflicting untracked files
 
 test conflicting untracked ignored file
 
-BROKEN: the ignored file gets overwritten by the remote version
-
   $ hg up -qC 0
   $ echo ignored > .hgignore
   $ hg add .hgignore
@@ -246,9 +244,9 @@ BROKEN: the ignored file gets overwritte
   $ echo untracked > ignored
   $ hg st
   $ hg up 'desc("add ignored file")'
-  1 files updated, 0 files merged, 0 files removed, 0 files unresolved
-  $ cat ignored
-  ignored
+  ignored: untracked file differs
+  abort: untracked files in working directory differ from files in requested revision
+  [255]
 
 test a local add