diff --git a/packages/config-loader/src/sources/MergedConfigSource.test.ts b/packages/config-loader/src/sources/MergedConfigSource.test.ts
index e8a3b8b565..0eb3903df7 100644
--- a/packages/config-loader/src/sources/MergedConfigSource.test.ts
+++ b/packages/config-loader/src/sources/MergedConfigSource.test.ts
@@ -17,8 +17,9 @@
 import { MergedConfigSource } from './MergedConfigSource';
 import { MutableConfigSource } from './MutableConfigSource';
 import { isResolved, readAll, simpleSource } from './__testUtils__/testUtils';
+import { ConfigSource } from './types';
 
-describe('MergeConfigSource', () => {
+describe('MergedConfigSource', () => {
   it('should forward from a single source', async () => {
     const source = simpleSource([{ a: 1 }, { a: 2 }, { a: 3 }]);
     const merged = MergedConfigSource.from([source]);
@@ -104,4 +105,47 @@ describe('MergeConfigSource', () => {
       done: true,
     });
   });
+
+  it('should be flattened', async () => {
+    const sym = Symbol.for(
+      '@backstage/config-loader#MergedConfigSource.sources',
+    );
+    const sourceA: ConfigSource = {
+      async *readConfigData() {
+        yield { data: [] };
+      },
+    };
+    const sourceD: ConfigSource = {
+      async *readConfigData() {
+        yield { data: [] };
+      },
+    };
+    const sourceB: ConfigSource = {
+      async *readConfigData() {
+        yield { data: [] };
+      },
+    };
+    const sourceC: ConfigSource = {
+      async *readConfigData() {
+        yield { data: [] };
+      },
+    };
+
+    const sourceAB = MergedConfigSource.from([sourceA, sourceB]);
+    const sourceABC = MergedConfigSource.from([sourceAB, sourceC]);
+    const sourceABCD = MergedConfigSource.from([sourceABC, sourceD]);
+
+    expect((sourceAB as any)[sym]).toEqual([sourceA, sourceB]);
+    expect((sourceABC as any)[sym]).toEqual([sourceA, sourceB, sourceC]);
+    expect((sourceABCD as any)[sym]).toEqual([
+      sourceA,
+      sourceB,
+      sourceC,
+      sourceD,
+    ]);
+
+    await expect(readAll(sourceAB)).resolves.toEqual([[]]);
+    await expect(readAll(sourceABC)).resolves.toEqual([[]]);
+    await expect(readAll(sourceABCD)).resolves.toEqual([[]]);
+  });
 });
diff --git a/packages/config-loader/src/sources/MergedConfigSource.ts b/packages/config-loader/src/sources/MergedConfigSource.ts
index 9bf5b20b38..206290b383 100644
--- a/packages/config-loader/src/sources/MergedConfigSource.ts
+++ b/packages/config-loader/src/sources/MergedConfigSource.ts
@@ -21,13 +21,29 @@ import {
   ReadConfigDataOptions,
 } from './types';
 
+const sourcesSymbol = Symbol.for(
+  '@backstage/config-loader#MergedConfigSource.sources',
+);
+
 export class MergedConfigSource implements ConfigSource {
+  // An optimization to flatten nested merged sources to avid unnecessary microtasks
+  static #flattenSources(sources: ConfigSource[]): ConfigSource[] {
+    return sources.flatMap(source => {
+      if (sourcesSymbol in source) {
+        return this.#flattenSources(source[sourcesSymbol] as ConfigSource[]);
+      }
+      return source;
+    });
+  }
+
   static from(sources: ConfigSource[]): ConfigSource {
-    return new MergedConfigSource(sources);
+    return new MergedConfigSource(this.#flattenSources(sources));
   }
 
   private constructor(private readonly sources: ConfigSource[]) {}
 
+  [sourcesSymbol] = this.sources;
+
   async *readConfigData(
     options?: ReadConfigDataOptions,
   ): AsyncConfigSourceIterator {