diff --git a/pkgs/clan-cli/clan_lib/templates/handler.py b/pkgs/clan-cli/clan_lib/templates/handler.py
index 9fecef37b..cecc887c3 100644
--- a/pkgs/clan-cli/clan_lib/templates/handler.py
+++ b/pkgs/clan-cli/clan_lib/templates/handler.py
@@ -46,7 +46,7 @@ def with_machine_template(
         )
 
     # Get the clan template from the specifier
-    [flake_ref, template_selector] = transform_url("machine", template_ident)
+    [flake_ref, template_selector] = transform_url("machine", template_ident, local_path=flake)
     template_flake = Flake(flake_ref)
     template = template_flake.select(template_selector)
 
diff --git a/pkgs/clan-cli/clan_lib/templates/template_url.py b/pkgs/clan-cli/clan_lib/templates/template_url.py
index 2e85394b7..0f4586f27 100644
--- a/pkgs/clan-cli/clan_lib/templates/template_url.py
+++ b/pkgs/clan-cli/clan_lib/templates/template_url.py
@@ -1,40 +1,58 @@
 import logging
+from pathlib import Path
+from typing import Protocol
 
 from clan_lib.errors import ClanError
 
 log = logging.getLogger(__name__)
 
 
-def transform_url(template_type: str, identifier: str) -> tuple[str, str]:
+class Flake(Protocol):
+    """
+    Protocol for a local flake, which has a path attribute.
+    Pass clan_lib.flake.Flake or any other object that implements this protocol.
+    """
+
+    @property
+    def path(self) -> Path: ...
+
+
+def transform_url(
+    template_type: str, identifier: str, local_path: Flake
+) -> tuple[str, str]:
     """
     Transform a template flake ref by injecting the context (clan|machine|disko) into the url.
     We do this for shorthand notation of URLs.
-    If the attribute selector path is longer than one, don't transform it.
+    If the attribute selector path is explicitly selecting an attribute, we don't transform it.
+
+    :param template_type: The type of the template (clan, machine, disko)
+    :param identifier: The identifier of the template, which can be a flake reference with a fragment.
+    :param local_path: The local flake path, which is used to resolve to a local flake reference, i.e. ".#" shorthand.
 
     Examples:
 
-    # injects "machine" as context
+    1. injects "machine" as context
     clan machines create --template .#new-machine
     or
     clan machines create --template #new-machine
     -> .#clan.templates.machine.new-machine
 
-    # injects "clan" as context
+    2. injects "clan" as context
     clan create --template .#default
     -> .#clan.templates.clan.default
 
-    # Dont transform explicit paths (e.g. when more than one attribute selector is present)
+    3. Dont transform explicit paths (e.g. when more than one attribute selector is present)
     clan machines create --template .#clan.templates.machine.new-machine
     -> .#clan.templates.machine.new-machine
 
     clan machines create --template .#"new.machine"
     -> .#clan.templates.machine."new.machine"
 
-    # Builtin templates
+    4. Builtin templates
     clan machines create --template new.machine
     -> clanInternals.templates.machine."new.machine"
 
-    # Remote templates
+    5. Remote templates
     clan machines create --template github:/org/repo#new.machine
     -> clanInternals.templates.machine."new.machine"
 
@@ -55,10 +73,14 @@ def transform_url(template_type: str, identifier: str) -> tuple[str, str]:
     [flake_ref, selector] = (
         identifier.split("#", 1) if "#" in identifier else ["", identifier]
     )
+    # Substitute the flake reference with the local flake path if it is empty or just a dot.
+    # This is required if the command will be executed from a different place, than the local flake root.
+    if not flake_ref or flake_ref == ".":
+        flake_ref = str(local_path.path)
 
     if "#" not in identifier:
         # No fragment, so we assume its a builtin template
-        return ("", f'clanInternals.templates.{template_type}."{selector}"')
+        return (flake_ref, f'clanInternals.templates.{template_type}."{selector}"')
 
     # TODO: implement support for quotes in the tail "a.b".c
     # If the tail contains a dot, or is quoted we assume its a path and don't transform it.
diff --git a/pkgs/clan-cli/clan_lib/templates/template_url_test.py b/pkgs/clan-cli/clan_lib/templates/template_url_test.py
index ecef1c88d..9ec74805b 100644
--- a/pkgs/clan-cli/clan_lib/templates/template_url_test.py
+++ b/pkgs/clan-cli/clan_lib/templates/template_url_test.py
@@ -20,8 +20,10 @@ def test_transform_url_self_explizit_dot() -> None:
     user_input = ".#new-machine"
     expected_selector = 'clan.templates.machine."new-machine"'
 
-    flake_ref, selector = transform_url(template_type, user_input)
-    assert flake_ref == "."
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
+    assert flake_ref == str(local_path.path)
     assert selector == expected_selector
 
 
@@ -29,8 +31,10 @@ def test_transform_url_self_no_dot() -> None:
     user_input = "#new-machine"
     expected_selector = 'clan.templates.machine."new-machine"'
 
-    flake_ref, selector = transform_url(template_type, user_input)
-    assert flake_ref == ""
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
+    assert flake_ref == str(local_path.path)
     assert selector == expected_selector
 
 
@@ -38,8 +42,10 @@ def test_transform_url_builtin_template() -> None:
     user_input = "new-machine"
     expected_selector = 'clanInternals.templates.machine."new-machine"'
 
-    flake_ref, selector = transform_url(template_type, user_input)
-    assert flake_ref == ""
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
+    assert flake_ref == str(local_path.path)
     assert selector == expected_selector
 
 
@@ -47,7 +53,9 @@ def test_transform_url_remote_template() -> None:
     user_input = "github:/org/repo#new-machine"
     expected_selector = 'clan.templates.machine."new-machine"'
 
-    flake_ref, selector = transform_url(template_type, user_input)
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
 
     assert flake_ref == "github:/org/repo"
     assert selector == expected_selector
@@ -57,8 +65,10 @@ def test_transform_url_explicit_path() -> None:
     user_input = ".#clan.templates.machine.new-machine"
     expected_selector = "clan.templates.machine.new-machine"
 
-    flake_ref, selector = transform_url(template_type, user_input)
-    assert flake_ref == "."
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
+    assert flake_ref == str(local_path.path)
     assert selector == expected_selector
 
 
@@ -66,16 +76,20 @@ def test_transform_url_explicit_path() -> None:
 def test_transform_url_quoted_selector() -> None:
     user_input = '.#"new.machine"'
     expected_selector = '"new.machine"'
-    flake_ref, selector = transform_url(template_type, user_input)
-    assert flake_ref == "."
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
+    assert flake_ref == str(local_path.path)
     assert selector == expected_selector
 
 
 def test_single_quote_selector() -> None:
     user_input = ".#'new.machine'"
     expected_selector = "'new.machine'"
-    flake_ref, selector = transform_url(template_type, user_input)
-    assert flake_ref == "."
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
+    assert flake_ref == str(local_path.path)
     assert selector == expected_selector
 
 
@@ -83,7 +97,9 @@ def test_custom_template_path() -> None:
     user_input = "github:/org/repo#my.templates.custom.machine"
     expected_selector = "my.templates.custom.machine"
 
-    flake_ref, selector = transform_url(template_type, user_input)
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
     assert flake_ref == "github:/org/repo"
     assert selector == expected_selector
 
@@ -93,7 +109,9 @@ def test_full_url_query_and_fragment() -> None:
     expected_flake_ref = "github:/org/repo?query=param"
     expected_selector = "my.templates.custom.machine"
 
-    flake_ref, selector = transform_url(template_type, user_input)
+    flake_ref, selector = transform_url(
+        template_type, user_input, local_path=local_path
+    )
     assert flake_ref == expected_flake_ref
     assert selector == expected_selector
 
@@ -102,15 +120,17 @@ def test_custom_template_type() -> None:
     user_input = "#my.templates.custom.machine"
     expected_selector = "my.templates.custom.machine"
 
-    flake_ref, selector = transform_url("custom", user_input)
-    assert flake_ref == ""
+    flake_ref, selector = transform_url("custom", user_input, local_path=local_path)
+    assert flake_ref == str(local_path.path)
     assert selector == expected_selector
 
 
 def test_malformed_identifier() -> None:
     user_input = "github:/org/repo#my.templates.custom.machine#extra"
     with pytest.raises(ClanError) as exc_info:
-        _flake_ref, _selector = transform_url(template_type, user_input)
+        _flake_ref, _selector = transform_url(
+            template_type, user_input, local_path=local_path
+        )
 
     assert isinstance(exc_info.value, ClanError)
     assert (