diff --git a/changelog.md b/changelog.md
index f27eb40419..d339fa4057 100644
--- a/changelog.md
+++ b/changelog.md
@@ -7,6 +7,7 @@
 - [#4108](https://github.com/ignite/cli/pull/4108) Add `xast` package (cherry-picked from [#3770](https://github.com/ignite/cli/pull/3770))
 - [#4110](https://github.com/ignite/cli/pull/4110) Scaffold a consumer chain with `interchain-security` v5.0.0-rc0.
 - [#4117](https://github.com/ignite/cli/pull/4117) Support relative path when installing local plugins
+- [#4117](https://github.com/ignite/cli/pull/4117), [#4125](https://github.com/ignite/cli/pull/4125) Support relative path when installing local plugins
 
 ### Changes
 
diff --git a/ignite/config/plugins/config.go b/ignite/config/plugins/config.go
index 4e3ec9d494..490ee29a0d 100644
--- a/ignite/config/plugins/config.go
+++ b/ignite/config/plugins/config.go
@@ -76,6 +76,11 @@ func RemoveDuplicates(plugins []Plugin) (unique []Plugin) {
 	return unique
 }
 
+// IsLocalPath returns true if the path is a local directory.
+func IsLocalPath(path string) bool {
+	return strings.HasPrefix(path, "/") || strings.HasPrefix(path, ".") || strings.HasPrefix(path, "~")
+}
+
 // IsGlobal returns whether the plugin is installed globally or locally for a chain.
 func (p Plugin) IsGlobal() bool {
 	return p.Global
@@ -83,7 +88,7 @@ func (p Plugin) IsGlobal() bool {
 
 // IsLocalPath returns true if the plugin path is a local directory.
 func (p Plugin) IsLocalPath() bool {
-	return strings.HasPrefix(p.Path, "/") || strings.HasPrefix(p.Path, ".")
+	return IsLocalPath(p.Path)
 }
 
 // HasPath verifies if a plugin has the given path regardless of version.
diff --git a/ignite/services/plugin/plugin.go b/ignite/services/plugin/plugin.go
index 7db1b4ef3e..044ea85efd 100644
--- a/ignite/services/plugin/plugin.go
+++ b/ignite/services/plugin/plugin.go
@@ -142,8 +142,19 @@ func newPlugin(pluginsDir string, cp pluginsconfig.Plugin, options ...Option) *P
 		apply(p)
 	}
 
-	if strings.HasPrefix(pluginPath, "/") {
-		// This is a local plugin, check if the file exists
+	// This is a local plugin, check if the file exists
+	if pluginsconfig.IsLocalPath(pluginPath) {
+		// if directory is relative, make it absolute
+		if !filepath.IsAbs(pluginPath) {
+			pluginPathAbs, err := filepath.Abs(pluginPath)
+			if err != nil {
+				p.Error = errors.Errorf("failed to get absolute path of %s: %w", pluginPath, err)
+				return p
+			}
+
+			pluginPath = pluginPathAbs
+		}
+
 		st, err := os.Stat(pluginPath)
 		if err != nil {
 			p.Error = errors.Wrapf(err, "local app path %q not found", pluginPath)
@@ -157,6 +168,7 @@ func newPlugin(pluginsDir string, cp pluginsconfig.Plugin, options ...Option) *P
 		p.name = path.Base(pluginPath)
 		return p
 	}
+
 	// This is a remote plugin, parse the URL
 	if i := strings.LastIndex(pluginPath, "@"); i != -1 {
 		// path contains a reference
@@ -236,23 +248,6 @@ func (p *Plugin) load(ctx context.Context) {
 	}
 
 	if p.IsLocalPath() {
-		// if directory is relative, make it absolute
-		if !filepath.IsAbs(p.srcPath) {
-			wd, err := os.Getwd()
-			if err != nil {
-				p.Error = errors.Errorf("failed to get working directory: %w", err)
-				return
-			}
-
-			srcPathAbs, err := filepath.Abs(p.srcPath)
-			if err != nil {
-				p.Error = errors.Errorf("failed to get absolute path of %s: %w", p.srcPath, err)
-				return
-			}
-
-			p.srcPath = filepath.Join(wd, srcPathAbs)
-		}
-
 		// trigger rebuild for local plugin if binary is outdated
 		if p.outdatedBinary() {
 			p.build(ctx)
diff --git a/ignite/services/plugin/plugin_test.go b/ignite/services/plugin/plugin_test.go
index c0a4750f7d..759ef52039 100644
--- a/ignite/services/plugin/plugin_test.go
+++ b/ignite/services/plugin/plugin_test.go
@@ -67,6 +67,16 @@ func TestNewPlugin(t *testing.T) {
 				stderr:  os.Stderr,
 			},
 		},
+		{
+			name:      "ok: relative local plugin",
+			pluginCfg: pluginsconfig.Plugin{Path: "./testdata"},
+			expectedPlugin: Plugin{
+				srcPath: path.Join(wd, "testdata"),
+				name:    "testdata",
+				stdout:  os.Stdout,
+				stderr:  os.Stderr,
+			},
+		},
 		{
 			name:      "fail: remote plugin with only domain",
 			pluginCfg: pluginsconfig.Plugin{Path: "github.com"},