diff --git a/packages/@angular/cli/upgrade/version.ts b/packages/@angular/cli/upgrade/version.ts
index a33e606c760f..5b5d5dcaf7c7 100644
--- a/packages/@angular/cli/upgrade/version.ts
+++ b/packages/@angular/cli/upgrade/version.ts
@@ -94,7 +94,9 @@ export class Version {
       if (v.isLocal()) {
         console.warn(yellow('Using a local version of angular. Proceeding with care...'));
       } else {
-        if (!v.isGreaterThanOrEqualTo(new SemVer('2.3.1'))) {
+        // Check if major is not 0, so that we stay compatible with local compiled versions
+        // of angular.
+        if (!v.isGreaterThanOrEqualTo(new SemVer('2.3.1')) && v.major != 0) {
           console.error(bold(red(stripIndents`
             This version of CLI is only compatible with angular version 2.3.1 or better. Please
             upgrade your angular version, e.g. by running:
diff --git a/packages/@ngtools/webpack/src/plugin.ts b/packages/@ngtools/webpack/src/plugin.ts
index f526e52da45e..bff8a01e15ef 100644
--- a/packages/@ngtools/webpack/src/plugin.ts
+++ b/packages/@ngtools/webpack/src/plugin.ts
@@ -269,13 +269,26 @@ export class AotPlugin implements Tapable {
 
     // Add lazy modules to the context module for @angular/core/src/linker
     compiler.plugin('context-module-factory', (cmf: any) => {
+      const angularCorePackagePath = require.resolve('@angular/core/package.json');
+      const angularCorePackageJson = require(angularCorePackagePath);
+      const angularCoreModulePath = path.resolve(path.dirname(angularCorePackagePath),
+                                                 angularCorePackageJson['module']);
+      // Pick the last part after the last node_modules instance. We do this to let people have
+      // a linked @angular/core or cli which would not be under the same path as the project
+      // being built.
+      const angularCoreModuleDir = path.dirname(angularCoreModulePath).split(/node_modules/).pop();
+
       cmf.plugin('after-resolve', (result: any, callback: (err?: any, request?: any) => void) => {
         if (!result) {
           return callback();
         }
 
-        // alter only request from @angular/core/src/linker
-        if (!result.resource.endsWith(path.join('@angular/core/src/linker'))) {
+        // Alter only request from Angular;
+        //   @angular/core/src/linker matches for 2.*.*,
+        //   The other logic is for flat modules and requires reading the package.json of angular
+        //     (see above).
+        if (!result.resource.endsWith(path.join('@angular/core/src/linker'))
+            && (angularCoreModuleDir && !result.resource.endsWith(angularCoreModuleDir))) {
           return callback(null, result);
         }