diff --git a/.changeset/fast-frogs-wave.md b/.changeset/fast-frogs-wave.md
new file mode 100644
index 0000000000..7dfe33aa70
--- /dev/null
+++ b/.changeset/fast-frogs-wave.md
@@ -0,0 +1,5 @@
+---
+'@backstage/cli': patch
+---
+
+Fixes a big in the bundling logic that caused `node_modules` inside local monorepo packages to be transformed.
diff --git a/packages/cli/src/lib/bundler/transforms.ts b/packages/cli/src/lib/bundler/transforms.ts
index 6dc32e6563..19f1acff77 100644
--- a/packages/cli/src/lib/bundler/transforms.ts
+++ b/packages/cli/src/lib/bundler/transforms.ts
@@ -35,7 +35,12 @@ export const transforms = (options: TransformOptions): Transforms => {
   const extraTransforms = isDev ? ['react-hot-loader'] : [];
 
   const transformExcludeCondition = {
-    and: [/node_modules/, { not: externalTransforms }],
+    or: [
+      // This makes sure we don't transform node_modules inside any of the local monorepo packages
+      /node_modules.*node_modules/,
+      // This excludes the local monorepo packages from the excludes, meaning they will be transformed
+      { and: [/node_modules/, { not: externalTransforms }] },
+    ],
   };
 
   const loaders = [