diff --git a/dvc/external_repo.py b/dvc/external_repo.py
index 8e46569b33..144fd46a80 100644
--- a/dvc/external_repo.py
+++ b/dvc/external_repo.py
@@ -66,7 +66,7 @@ def __init__(self, root_dir, url):
         super().__init__(root_dir)
         self.url = url
         self._set_cache_dir()
-        self._set_upstream()
+        self._fix_upstream()
 
     def pull_to(self, path, to_info):
         """
@@ -123,21 +123,35 @@ def _set_cache_dir(self):
 
         self.cache.local.cache_dir = cache_dir
 
-    def _set_upstream(self):
-        # check if the URL is local and no default remote is present
-        # add default remote pointing to the original repo's cache location
-        if os.path.isdir(self.url):
-            if not self.config["core"].get("remote"):
-                src_repo = Repo(self.url)
-                try:
-                    cache_dir = src_repo.cache.local.cache_dir
-                finally:
-                    src_repo.close()
-
-                self.config["remote"]["auto-generated-upstream"] = {
-                    "url": cache_dir
-                }
-                self.config["core"]["remote"] = "auto-generated-upstream"
+    def _fix_upstream(self):
+        if not os.path.isdir(self.url):
+            return
+
+        remote_name = self.config["core"].get("remote")
+        src_repo = Repo(self.url)
+        try:
+            if remote_name:
+                self._fix_local_remote(src_repo, remote_name)
+            else:
+                self._add_upstream(src_repo)
+        finally:
+            src_repo.close()
+
+    def _fix_local_remote(self, src_repo, remote_name):
+        # If a remote URL is relative to the source repo,
+        # it will have changed upon config load and made
+        # relative to this new repo. Restore the old one here.
+        new_remote = self.config["remote"][remote_name]
+        old_remote = src_repo.config["remote"][remote_name]
+        if new_remote["url"] != old_remote["url"]:
+            new_remote["url"] = old_remote["url"]
+
+    def _add_upstream(self, src_repo):
+        # Fill the empty upstream entry with a new remote pointing to the
+        # original repo's cache location.
+        cache_dir = src_repo.cache.local.cache_dir
+        self.config["remote"]["auto-generated-upstream"] = {"url": cache_dir}
+        self.config["core"]["remote"] = "auto-generated-upstream"
 
 
 class ExternalGitRepo:
diff --git a/tests/func/test_external_repo.py b/tests/func/test_external_repo.py
index d1a23de462..fbbaf37fda 100644
--- a/tests/func/test_external_repo.py
+++ b/tests/func/test_external_repo.py
@@ -1,4 +1,5 @@
 import os
+import shutil
 
 from mock import patch
 from dvc.compat import fspath
@@ -6,6 +7,7 @@
 from dvc.external_repo import external_repo
 from dvc.scm.git import Git
 from dvc.remote import RemoteLOCAL
+from dvc.utils import relpath
 
 
 def test_external_repo(erepo_dir):
@@ -88,3 +90,32 @@ def test_pull_subdir_file(tmp_dir, erepo_dir):
 
     assert dest.is_file()
     assert dest.read_text() == "contents"
+
+
+def test_relative_remote(erepo_dir, tmp_dir):
+    # these steps reproduce the script on this issue:
+    # https://github.com/iterative/dvc/issues/2756
+    with erepo_dir.chdir():
+        erepo_dir.dvc_gen("file", "contents", commit="create file")
+
+    upstream_dir = tmp_dir
+    upstream_url = relpath(upstream_dir, erepo_dir)
+    with erepo_dir.dvc.config.edit() as conf:
+        conf["remote"]["upstream"] = {"url": upstream_url}
+        conf["core"]["remote"] = "upstream"
+
+    erepo_dir.scm_add(
+        erepo_dir.dvc.config.files["repo"], commit="Update dvc config"
+    )
+    erepo_dir.dvc.push()
+
+    (erepo_dir / "file").unlink()
+    shutil.rmtree(erepo_dir.dvc.cache.local.cache_dir)
+
+    url = fspath(erepo_dir)
+
+    with external_repo(url) as repo:
+        assert os.path.isabs(repo.config["remote"]["upstream"]["url"])
+        assert os.path.isdir(repo.config["remote"]["upstream"]["url"])
+        with repo.open_by_relpath("file") as fd:
+            assert fd.read() == "contents"