diff --git a/src/loader.ts b/src/loader.ts
index c8453b3..90db8b7 100644
--- a/src/loader.ts
+++ b/src/loader.ts
@@ -81,6 +81,10 @@ async function ESBuildLoader(
 		} else {
 			/* Detect tsconfig file */
 
+			// Don't look for tsconfig.json based on external sources (see
+			// https://github.com/privatenumber/esbuild-loader/issues/363)
+			if (resourcePath.match(/node_modules/) != null) return;
+
 			// Webpack shouldn't be loading the same path multiple times so doesn't need to be cached
 			const tsconfig = getTsconfig(resourcePath, 'tsconfig.json', tsconfigCache);
 			if (tsconfig) {
diff --git a/tests/specs/tsconfig.ts b/tests/specs/tsconfig.ts
index b005224..9a5e518 100644
--- a/tests/specs/tsconfig.ts
+++ b/tests/specs/tsconfig.ts
@@ -2,7 +2,7 @@ import path from 'path';
 import { createRequire } from 'node:module';
 import { testSuite, expect } from 'manten';
 import { createFixture } from 'fs-fixture';
-import { execa } from 'execa';
+import { execa, ExecaError } from 'execa';
 import { tsconfigJson } from '../utils.js';
 
 const webpackCli = path.resolve('node_modules/webpack-cli/bin/cli.js');
@@ -263,6 +263,78 @@ export default testSuite(({ describe }) => {
 				const code2 = await fixture.readFile('dist/index2.js', 'utf8');
 				expect(code2).toMatch('__publicField(this, "foo", 100);');
 			});
+
+			test('ignores tsconfig.json in third party dependencies', async () => {
+				await using fixture = await createFixture({
+					// Fake external dependency
+					node_modules: {
+						"fake-lib": {
+							"index.js": `export function testFn() { return "Hi!" }`,
+							"package.json": JSON.stringify({
+								name: "fake-lib",
+								exports: {
+									".": "./index.js",
+								}
+							}),
+							'tsconfig.json': tsconfigJson({
+								extends: "something-imaginary",
+							}),
+						}
+					},
+					// Our project
+					src: {
+						'index.ts': `
+							import { testFn } from "fake-lib";
+
+							export default testFn;`,
+					},
+					'webpack.config.js': `
+					module.exports = {
+						mode: 'production',
+
+						optimization: {
+							minimize: false,
+						},
+
+						resolveLoader: {
+							alias: {
+								'esbuild-loader': ${JSON.stringify(esbuildLoader)},
+							},
+						},
+
+						module: {
+							rules: [
+								{
+									test: /\.[tj]sx?$/,
+									loader: 'esbuild-loader',
+									options: {
+										target: 'es2015',
+									}
+								}
+							],
+						},
+
+						entry: {
+							index: './src/index.ts',
+						},
+					};
+					`,
+				});
+
+				let result;
+
+				try {
+					result = await execa(webpackCli, {
+						cwd: fixture.path,
+					});
+				} catch (e) {
+					result = e as ExecaError;
+				}
+				const { exitCode, stderr } = result;
+
+				expect(stderr).not.toMatch("File 'something-imaginary' not found.")
+				expect(exitCode).toEqual(0);
+			});
 		});
 
 		describe('plugin', ({ test }) => {