diff --git a/bin/bitbake-setup b/bin/bitbake-setup
index 06255b112..38c1d4d36 100755
--- a/bin/bitbake-setup
+++ b/bin/bitbake-setup
@@ -81,7 +81,7 @@ def write_sources_fixed_revisions(config_dir, layer_dir, config_data):
 
 def commit_config(config_dir):
     bb.process.run("git -C {} add .".format(config_dir))
-    bb.process.run("git -C {} commit --no-verify -a -m 'Configuration at {}'".format(config_dir, time.asctime()))
+    bb.process.run("git -C {} commit --allow-empty --no-verify -a -m 'Configuration at {}'".format(config_dir, time.asctime()))
 
 def _write_layer_list(dest, repodirs):
     layers = []
@@ -93,7 +93,7 @@ def _write_layer_list(dest, repodirs):
     with open(layers_f, 'w') as f:
         json.dump({"version":"1.0","layers":layers}, f, sort_keys=True, indent=4)
 
-def checkout_layers(layers, layerdir, d):
+def checkout_layers(layers, confdir, layerdir, d):
     def _checkout_git_remote(r_remote, repodir, layers_fixed_revisions):
         rev = r_remote['rev']
         branch = r_remote.get('branch', None)
@@ -117,6 +117,17 @@ def checkout_layers(layers, layerdir, d):
         logger.plain("Making a symbolic link {} pointing to {}".format(dst, src))
         os.symlink(src, dst)
 
+    def _has_local_modifications(r_name, r_path):
+        fixed_revisions = json.load(open(os.path.join(confdir, "sources-fixed-revisions.json")))
+        rev = fixed_revisions['sources'][r_name]['git-remote']['rev']
+        status = bb.process.run('git -C {} status --porcelain'.format(r_path))[0]
+        if status:
+            return True
+        diff = bb.process.run('git -C {} diff {}'.format(r_path, rev))[0]
+        if diff:
+            return True
+        return False
+
     layers_fixed_revisions = copy.deepcopy(layers)
     repodirs = []
     oesetupbuild = None
@@ -130,10 +141,25 @@ def checkout_layers(layers, layerdir, d):
         r_local = r_data.get('local')
         if r_remote and r_local:
             raise Exception("Source {} contains both git-remote and local properties.".format(r_name))
+
+        repodir_path = os.path.join(layerdir, repodir)
+        if os.path.lexists(repodir_path):
+            if os.path.islink(repodir_path):
+                os.remove(repodir_path)
+            elif _has_local_modifications(r_name, repodir_path):
+                timestamp = time.strftime("%Y%m%d%H%M%S")
+                backup_path = repodir_path + '-backup.{}'.format(timestamp)
+                logger.warning("""Source {} in {} contains local modifications. Renaming to {} to preserve them.
+For local development work it is recommended to clone the needed layers separately and use 'bitbake-setup init' with -L option to use them.""".format(
+                    r_name, repodir_path, backup_path))
+                os.rename(repodir_path, backup_path)
+            else:
+                shutil.rmtree(repodir_path)
+
         if r_remote:
             _checkout_git_remote(r_remote, repodir, layers_fixed_revisions)
         if r_local:
-            _symlink_local(os.path.expanduser(r_local["path"]), os.path.join(layerdir,repodir))
+            _symlink_local(os.path.expanduser(r_local["path"]), repodir_path)
 
         if os.path.exists(os.path.join(layerdir, repodir, 'scripts/oe-setup-build')):
             oesetupbuild = os.path.join(layerdir, repodir, 'scripts/oe-setup-build')
@@ -344,7 +370,7 @@ def merge_overrides_into_sources(sources, overrides):
 
 def update_build(config, confdir, setupdir, layerdir, d, update_bb_conf="prompt"):
     layer_config = merge_overrides_into_sources(config["data"]["sources"], config["source-overrides"]["sources"])
-    sources_fixed_revisions = checkout_layers(layer_config, layerdir, d)
+    sources_fixed_revisions = checkout_layers(layer_config, confdir, layerdir, d)
     bitbake_config = config["bitbake-config"]
     thisdir = os.path.dirname(config["path"]) if config["type"] == 'local' else None
     setup_bitbake_build(bitbake_config, layerdir, setupdir, thisdir, update_bb_conf)
diff --git a/lib/bb/tests/setup.py b/lib/bb/tests/setup.py
index 438dc0cd8..5ff489cbe 100644
--- a/lib/bb/tests/setup.py
+++ b/lib/bb/tests/setup.py
@@ -175,6 +175,16 @@ print("BBPATH is {{}}".format(os.environ["BBPATH"]))
 """ % (self.testrepopath, branch, rev)
         return self._add_json_config_to_registry_helper(name, sources)
 
+    def add_local_json_config_to_registry(self, name, path):
+        sources = """
+        "test-repo": {
+            "local": {
+                "path": "%s"
+            }
+        }
+""" % (path)
+        return self._add_json_config_to_registry_helper(name, sources)
+
     def add_file_to_testrepo(self, name, content, script=False):
         fullname = os.path.join(self.testrepopath, name)
         os.makedirs(os.path.join(self.testrepopath, os.path.dirname(name)), exist_ok=True)
@@ -413,7 +423,6 @@ print("BBPATH is {{}}".format(os.environ["BBPATH"]))
             sums_after = _conf_chksum(f"{setuppath}/build/conf")
             self.assertEqual(sums_before, sums_after)
 
-        # check source overrides, local sources provided with symlinks, and custom setup dir name
         def _check_local_sources(custom_setup_dir):
             custom_setup_path = os.path.join(self.tempdir, 'bitbake-builds', custom_setup_dir)
             custom_layer_path = os.path.join(custom_setup_path, 'layers', 'test-repo')
@@ -421,6 +430,60 @@ print("BBPATH is {{}}".format(os.environ["BBPATH"]))
             self.assertEqual(self.testrepopath, os.path.realpath(custom_layer_path))
             self.config_is_unchanged(custom_setup_path)
 
+        # Change the configuration to refer to a local source, then to another local source, then back to a git remote
+        # Run status/update after each change and verify that nothing breaks
+        c = 'gadget'
+        setuppath = self.get_setup_path('test-config-1', c)
+        self.config_is_unchanged(setuppath)
+
+        json_1 = self.add_local_json_config_to_registry('test-config-1.conf.json', self.testrepopath)
+        os.environ['BBPATH'] = os.path.join(setuppath, 'build')
+        out = self.runbbsetup("update --update-bb-conf='yes'")
+        _check_local_sources(setuppath)
+
+        prev_path = self.testrepopath
+        self.testrepopath = prev_path + "-2"
+        self.git("clone {} {}".format(prev_path, self.testrepopath), cwd=self.tempdir)
+        json_1 = self.add_local_json_config_to_registry('test-config-1.conf.json', self.testrepopath)
+        os.environ['BBPATH'] = os.path.join(setuppath, 'build')
+        out = self.runbbsetup("update --update-bb-conf='yes'")
+        _check_local_sources(setuppath)
+
+        self.testrepopath = prev_path
+        json_1 = self.add_json_config_to_registry('test-config-1.conf.json', branch, branch)
+        os.environ['BBPATH'] = os.path.join(setuppath, 'build')
+        out = self.runbbsetup("update --update-bb-conf='yes'")
+        self.check_setupdir_files(setuppath, test_file_content)
+
+        # Also check that there are no layer backups up to this point, then make a change that should
+        # result in a layer backup, and check that it does happen.
+        def _check_layer_backups(layer_path, expected_backups):
+            files = os.listdir(layer_path)
+            backups = len([f for f in files if 'backup' in f])
+            self.assertEqual(backups, expected_backups, msg = "Expected {} layer backups, got {}, directory listing: {}".format(expected_backups, backups, files))
+
+        layers_path = os.path.join(setuppath, 'layers')
+        layer_path = os.path.join(layers_path, 'test-repo')
+        _check_layer_backups(layers_path, 0)
+
+        ## edit a file without making a commit
+        with open(os.path.join(layer_path, 'local-modification'), 'w') as f:
+            f.write('locally-modified\n')
+        test_file_content = "modified-again\n"
+        self.add_file_to_testrepo('test-file', test_file_content)
+        os.environ['BBPATH'] = os.path.join(setuppath, 'build')
+        out = self.runbbsetup("update --update-bb-conf='yes'")
+        _check_layer_backups(layers_path, 1)
+
+        ## edit a file and make a commit
+        with open(os.path.join(layer_path, 'local-modification'), 'w') as f:
+            f.write('locally-modified-again\n')
+        self.git('add .', cwd=layer_path)
+        self.git('commit -m "Adding a local modification"', cwd=layer_path)
+        out = self.runbbsetup("update --update-bb-conf='yes'")
+        _check_layer_backups(layers_path, 2)
+
+        # check source overrides, local sources provided with symlinks, and custom setup dir name
         source_override_content = """
 {
     "sources": {