diff --git a/src/main/java/com/google/devtools/build/lib/rules/repository/RepositoryDelegatorFunction.java b/src/main/java/com/google/devtools/build/lib/rules/repository/RepositoryDelegatorFunction.java
index 9200ec0ef003fd..020e375951a921 100644
--- a/src/main/java/com/google/devtools/build/lib/rules/repository/RepositoryDelegatorFunction.java
+++ b/src/main/java/com/google/devtools/build/lib/rules/repository/RepositoryDelegatorFunction.java
@@ -549,7 +549,7 @@ public static RepositoryDirectoryValue.Builder symlinkRepoRoot(
     if (!WorkspaceFileHelper.isValidRepoRoot(destination)) {
       throw new RepositoryFunctionException(
           new IOException("No MODULE.bazel, REPO.bazel, or WORKSPACE file found in " + destination),
-          Transience.PERSISTENT);
+          Transience.TRANSIENT);
     }
     return RepositoryDirectoryValue.builder().setExcludeFromVendoring(true).setPath(source);
   }
diff --git a/src/test/py/bazel/bzlmod/bazel_overrides_test.py b/src/test/py/bazel/bzlmod/bazel_overrides_test.py
index 45c3f4d9890fd1..cb59bdd33e8c07 100644
--- a/src/test/py/bazel/bzlmod/bazel_overrides_test.py
+++ b/src/test/py/bazel/bzlmod/bazel_overrides_test.py
@@ -513,6 +513,28 @@ def testCmdWorkspaceRelativeModuleOverride(self):
         'Target @@ss~//:choose_me up-to-date (nothing to build)', stderr
     )
 
+  def testLocalPathOverrideErrorResolved(self):
+    self.ScratchFile(
+        'MODULE.bazel',
+        [
+            'bazel_dep(name = "module")',
+            'local_path_override(',
+            '  module_name = "module",',
+            '  path = "module",',
+            ')',
+        ],
+    )
+    self.ScratchFile('module/BUILD')
+
+    # MODULE.bazel file is missing
+    stderr, _, exit_code = self.RunBazel(
+        ['build', '@module//:all'], allow_failure=True
+    )
+    self.AssertNotExitCode(exit_code, 0, stderr)
+
+    self.ScratchFile('module/MODULE.bazel', ["module(name = 'module')"])
+    _, _, _ = self.RunBazel(['build', '@module//:all'])
+
 
 if __name__ == '__main__':
   absltest.main()