diff --git a/e2e/react-start/basic/src/routes/encoding/link-active/$target.tsx b/e2e/react-start/basic/src/routes/encoding/link-active/$target.tsx
new file mode 100644
index 00000000000..f13637d2344
--- /dev/null
+++ b/e2e/react-start/basic/src/routes/encoding/link-active/$target.tsx
@@ -0,0 +1,24 @@
+import { createFileRoute, Link } from '@tanstack/react-router'
+import z from 'zod'
+
+export const Route = createFileRoute('/encoding/link-active/$target')({
+  validateSearch: z.object({ foo: z.string().optional() }),
+
+  component: RouteComponent,
+})
+
+function RouteComponent() {
+  return (
+    <Link
+      data-testid="self-link"
+      activeProps={{ className: 'font-bold' }}
+      activeOptions={{ includeSearch: true }}
+      to="/encoding/link-active/$target"
+      params={{ target: Route.useParams().target }}
+      search={Route.useSearch()}
+    >
+      link to self with $target={Route.useParams().target}, search.foo=
+      {Route.useSearch().foo}
+    </Link>
+  )
+}
diff --git a/e2e/react-start/basic/src/routes/encoding/link-active/index.tsx b/e2e/react-start/basic/src/routes/encoding/link-active/index.tsx
new file mode 100644
index 00000000000..1b8cc127024
--- /dev/null
+++ b/e2e/react-start/basic/src/routes/encoding/link-active/index.tsx
@@ -0,0 +1,19 @@
+import { createFileRoute } from '@tanstack/react-router'
+
+export const Route = createFileRoute('/encoding/link-active/')({
+  component: RouteComponent,
+})
+
+function RouteComponent() {
+  return (
+    <div>
+      <Route.Link to="$target" params={{ target: 'ê' }}>
+        link to $target=ê
+      </Route.Link>
+      <br />
+      <Route.Link to="$target" params={{ target: 'hello' }}>
+        link to $target=hello
+      </Route.Link>
+    </div>
+  )
+}
diff --git a/e2e/react-start/basic/tests/encoding.spec.ts b/e2e/react-start/basic/tests/encoding.spec.ts
new file mode 100644
index 00000000000..169cf4c7025
--- /dev/null
+++ b/e2e/react-start/basic/tests/encoding.spec.ts
@@ -0,0 +1,47 @@
+import { expect } from '@playwright/test'
+
+import { test } from '@tanstack/router-e2e-utils'
+import combinateImport from 'combinate'
+
+// somehow playwright does not correctly import default exports
+const combinate = (combinateImport as any).default as typeof combinateImport
+
+test.beforeEach(async ({ page }) => {
+  await page.goto('/')
+})
+
+test.use({
+  whitelistErrors: [
+    /Failed to load resource: the server responded with a status of 404/,
+  ],
+})
+
+combinate
+test.describe('link active', () => {
+  const testMatrix = combinate({
+    target: ['ê', 'hello'] as const,
+    search: [undefined, { foo: 'bar' }, { foo: 'ö' }] as const,
+  })
+
+  testMatrix.forEach(({ target, search }) => {
+    test(`should correctly highlight active link for $target=${target} and search=${JSON.stringify(search)}`, async ({
+      page,
+    }) => {
+      const url = new URL(
+        `/encoding/link-active/${target}`,
+        'http://localhost:3000',
+      )
+      if (search) {
+        Object.entries(search).forEach(([key, value]) => {
+          url.searchParams.set(key, value)
+        })
+      }
+      const hrefWithoutOrigin = url.href.replace(url.origin, '')
+      await page.goto(hrefWithoutOrigin)
+      const link = page.getByTestId('self-link')
+      await expect(link).toBeInViewport()
+      await expect(link).toHaveAttribute('class', 'font-bold')
+      await expect(link).toHaveAttribute('data-status', 'active')
+    })
+  })
+})