diff --git a/src/ng/directive/ngRepeat.js b/src/ng/directive/ngRepeat.js
index 5f977ae6..972cd0ea 100644
--- a/src/ng/directive/ngRepeat.js
+++ b/src/ng/directive/ngRepeat.js
@@ -264,7 +264,6 @@ var ngRepeatDirective = ['$parse', '$animate', function($parse, $animate) {
               // lastBlockMap on the next iteration.
               nextBlockMap = {},
               arrayLength,
-              childScope,
               key, value, // key/value of iteration
               trackById,
               trackByIdFn,
@@ -273,6 +272,17 @@ var ngRepeatDirective = ['$parse', '$animate', function($parse, $animate) {
               nextBlockOrder = [],
               elementsToRemove;
 
+          var updateScope = function(scope, index) {
+            scope[valueIdentifier] = value;
+            if (keyIdentifier) scope[keyIdentifier] = key;
+            scope.$index = index;
+            scope.$first = (index === 0);
+            scope.$last = (index === (arrayLength - 1));
+            scope.$middle = !(scope.$first || scope.$last);
+            // jshint bitwise: false
+            scope.$odd = !(scope.$even = (index&1) === 0);
+            // jshint bitwise: true
+          };
 
           if (isArrayLike(collection)) {
             collectionKeys = collection;
@@ -340,8 +350,6 @@ var ngRepeatDirective = ['$parse', '$animate', function($parse, $animate) {
             if (block.scope) {
               // if we have already seen this object, then we need to reuse the
               // associated scope/element
-              childScope = block.scope;
-
               nextNode = previousNode;
               do {
                 nextNode = nextNode.nextSibling;
@@ -354,25 +362,11 @@ var ngRepeatDirective = ['$parse', '$animate', function($parse, $animate) {
               previousNode = getBlockEnd(block);
             } else {
               // new item which we don't know about
-              childScope = $scope.$new();
-            }
-
-            childScope[valueIdentifier] = value;
-            if (keyIdentifier) childScope[keyIdentifier] = key;
-            childScope.$index = index;
-            childScope.$first = (index === 0);
-            childScope.$last = (index === (arrayLength - 1));
-            childScope.$middle = !(childScope.$first || childScope.$last);
-            // jshint bitwise: false
-            childScope.$odd = !(childScope.$even = (index&1) === 0);
-            // jshint bitwise: true
-
-            if (!block.scope) {
-              $transclude(childScope, function(clone) {
+              $transclude(function(clone, scope) {
+                block.scope = scope;
                 clone[clone.length++] = document.createComment(' end ngRepeat: ' + expression + ' ');
                 $animate.enter(clone, null, jqLite(previousNode));
                 previousNode = clone;
-                block.scope = childScope;
                 // Note: We only need the first/last node of the cloned nodes.
                 // However, we need to keep the reference to the jqlite wrapper as it might be changed later
                 // by a directive with templateUrl when it's template arrives.
@@ -380,6 +374,7 @@ var ngRepeatDirective = ['$parse', '$animate', function($parse, $animate) {
                 nextBlockMap[block.id] = block;
               });
             }
+            updateScope(block.scope, index);
           }
           lastBlockMap = nextBlockMap;
         });
diff --git a/test/ng/directive/ngRepeatSpec.js b/test/ng/directive/ngRepeatSpec.js
index 0cc847e6..fd8f216a 100644
--- a/test/ng/directive/ngRepeatSpec.js
+++ b/test/ng/directive/ngRepeatSpec.js
@@ -1175,6 +1175,26 @@ describe('ngRepeat and transcludes', function() {
       dealoc(element);
     });
   });
+
+
+  it('should use the correct transcluded scope', function() {
+    module(function($compileProvider) {
+      $compileProvider.directive('iso', valueFn({
+        restrict: 'E',
+        transclude: true,
+        template: '<div ng-repeat="a in [1]"><div ng-transclude></div></div>',
+        scope: {}
+      }));
+    });
+    inject(function($compile, $rootScope) {
+      $rootScope.val = 'transcluded content';
+      var element = $compile('<iso><span ng-bind="val"></span></iso>')($rootScope);
+      $rootScope.$digest();
+      expect(trim(element.text())).toEqual('transcluded content');
+      dealoc(element);
+    });
+  });
+
 });
 
 describe('ngRepeat animations', function() {