diff --git a/gix-dir/src/walk/readdir.rs b/gix-dir/src/walk/readdir.rs
index 178a03295..c520f39d7 100644
--- a/gix-dir/src/walk/readdir.rs
+++ b/gix-dir/src/walk/readdir.rs
@@ -359,6 +359,11 @@ impl Mark {
             return None;
         }
 
+        let collapsed_property = state.on_hold[self.start_index..]
+            .iter()
+            .all(|entry| entry.property == Some(entry::Property::EmptyDirectory))
+            .then_some(entry::Property::EmptyDirectory);
+
         // Pathspecs affect the collapse of the next level, hence find the highest-value one.
         let dir_pathspec_match = state.on_hold[self.start_index..]
             .iter()
@@ -396,6 +401,7 @@ impl Mark {
                 Cow::Borrowed(dir_rela_path),
                 classify::Outcome {
                     status: dir_status,
+                    property: dir_info.property.or(collapsed_property),
                     pathspec_match: dir_pathspec_match,
                     ..dir_info
                 },
diff --git a/gix-dir/tests/dir/walk.rs b/gix-dir/tests/dir/walk.rs
index 09ff80b17..4cfa6a327 100644
--- a/gix-dir/tests/dir/walk.rs
+++ b/gix-dir/tests/dir/walk.rs
@@ -443,7 +443,7 @@ fn complex_empty() -> crate::Result {
         &[
             entry("dirs-and-files", Untracked, Directory),
             entry("empty-toplevel", Untracked, Directory).with_property(EmptyDirectory),
-            entry("only-dirs", Untracked, Directory),
+            entry("only-dirs", Untracked, Directory).with_property(EmptyDirectory),
         ],
         "empty directories collapse just fine"
     );
diff --git a/gix/tests/fixtures/make_status_repos.sh b/gix/tests/fixtures/make_status_repos.sh
index a4de9fbe0..418f6a3ca 100755
--- a/gix/tests/fixtures/make_status_repos.sh
+++ b/gix/tests/fixtures/make_status_repos.sh
@@ -69,3 +69,12 @@ git init -q submodule-assume-unchanged-symlink
   rm -Rf sub
   ln -s ../module sub
 )
+
+git init -q nested-empty-tree
+(cd nested-empty-tree
+  touch tracked
+  git add tracked
+  git commit -q -m init
+
+  mkdir -p empty/nested
+)
diff --git a/gix/tests/gix/status.rs b/gix/tests/gix/status.rs
index 4fd061dc3..1cf960c73 100644
--- a/gix/tests/gix/status.rs
+++ b/gix/tests/gix/status.rs
@@ -342,6 +342,25 @@ mod index_worktree {
             Ok(())
         }
 
+        #[test]
+        fn nested_empty_directories_are_ignored() -> crate::Result {
+            let repo = repo("nested-empty-tree")?;
+            let mut status = repo
+                .status(gix::progress::Discard)?
+                .index_worktree_options_mut(|opts| {
+                    opts.sorting =
+                        Some(gix::status::plumbing::index_as_worktree_with_renames::Sorting::ByPathCaseSensitive);
+                })
+                .into_index_worktree_iter(None)?;
+            let items: Vec<_> = status.by_ref().filter_map(Result::ok).collect();
+            assert_eq!(
+                items,
+                [],
+                "directories that only contain empty subdirectories should not be reported as untracked"
+            );
+            Ok(())
+        }
+
         #[test]
         fn untracked_files_collapse_by_default() -> crate::Result {
             let repo = repo("untracked-only")?;