diff --git a/hgext/keyword.py b/hgext/keyword.py
--- a/hgext/keyword.py
+++ b/hgext/keyword.py
@@ -264,8 +264,17 @@ class kwtemplater(object):
             if util.binary(data):
                 continue
             if expand:
+                parents = ctx.parents()
                 if lookup:
                     ctx = self.linkctx(f, mf[f])
+                elif self.restrict and len(parents) > 1:
+                    # merge commit
+                    # in case of conflict f is in modified state during
+                    # merge, even if f does not differ from f in parent
+                    for p in parents:
+                        if f in p and not p[f].cmp(ctx[f]):
+                            ctx = p[f].changectx()
+                            break
                 data, found = self.substitute(data, f, ctx, re_kw.subn)
             elif self.restrict:
                 found = re_kw.search(data)
diff --git a/tests/test-keyword.t b/tests/test-keyword.t
--- a/tests/test-keyword.t
+++ b/tests/test-keyword.t
@@ -1062,13 +1062,13 @@ conflict: keyword should stay outside co
   foo
   >>>>>>> other: 85d2d2d732a5  - test: simplemerge
 
-resolve to local
+resolve to local, m must contain hash of last change (local parent)
 
   $ hg resolve -t internal:local -a
   (no more unresolved files)
   $ hg commit -m localresolve
   $ cat m
-  $Id: m 800511b3a22d Thu, 01 Jan 1970 00:00:00 +0000 test $
+  $Id: m 88a80c8d172e Thu, 01 Jan 1970 00:00:00 +0000 test $
   bar
 
 Test restricted mode with transplant -b