diff --git a/builtin/clone.c b/builtin/clone.c
index fbfd6568cd..391aa41075 100644
--- a/builtin/clone.c
+++ b/builtin/clone.c
@@ -1233,7 +1233,7 @@ int cmd_clone(int argc, const char **argv, const char *prefix)
 		 * Now that we know what algorithm the remote side is using,
 		 * let's set ours to the same thing.
 		 */
-		initialize_repository_version(hash_algo);
+		initialize_repository_version(hash_algo, 1);
 		repo_set_hash_algo(the_repository, hash_algo);
 
 		mapped_refs = wanted_peer_refs(refs, &remote->fetch);
diff --git a/builtin/init-db.c b/builtin/init-db.c
index cd3e760541..01bc648d41 100644
--- a/builtin/init-db.c
+++ b/builtin/init-db.c
@@ -179,7 +179,7 @@ static int needs_work_tree_config(const char *git_dir, const char *work_tree)
 	return 1;
 }
 
-void initialize_repository_version(int hash_algo)
+void initialize_repository_version(int hash_algo, int reinit)
 {
 	char repo_version_string[10];
 	int repo_version = GIT_REPO_VERSION;
@@ -195,6 +195,8 @@ void initialize_repository_version(int hash_algo)
 	if (hash_algo != GIT_HASH_SHA1)
 		git_config_set("extensions.objectformat",
 			       hash_algos[hash_algo].name);
+	else if (reinit)
+		git_config_set_gently("extensions.objectformat", NULL);
 }
 
 static int create_default_files(const char *template_path,
@@ -277,7 +279,7 @@ static int create_default_files(const char *template_path,
 		free(ref);
 	}
 
-	initialize_repository_version(fmt->hash_algo);
+	initialize_repository_version(fmt->hash_algo, 0);
 
 	/* Check filemode trustability */
 	path = git_path_buf(&buf, "config");
diff --git a/cache.h b/cache.h
index cee8aa5dc3..c0072d43b1 100644
--- a/cache.h
+++ b/cache.h
@@ -629,7 +629,7 @@ int path_inside_repo(const char *prefix, const char *path);
 int init_db(const char *git_dir, const char *real_git_dir,
 	    const char *template_dir, int hash_algo,
 	    const char *initial_branch, unsigned int flags);
-void initialize_repository_version(int hash_algo);
+void initialize_repository_version(int hash_algo, int reinit);
 
 void sanitize_stdfds(void);
 int daemonize(void);
diff --git a/t/t5601-clone.sh b/t/t5601-clone.sh
index 15fb64c18d..b6c8312da1 100755
--- a/t/t5601-clone.sh
+++ b/t/t5601-clone.sh
@@ -631,6 +631,20 @@ test_expect_success CASE_INSENSITIVE_FS 'colliding file detection' '
 	test_i18ngrep "the following paths have collided" icasefs/warning
 '
 
+test_expect_success 'clone with GIT_DEFAULT_HASH' '
+	(
+		sane_unset GIT_DEFAULT_HASH &&
+		git init --object-format=sha1 test-sha1 &&
+		git init --object-format=sha256 test-sha256
+	) &&
+	test_commit -C test-sha1 foo &&
+	test_commit -C test-sha256 foo &&
+	GIT_DEFAULT_HASH=sha1 git clone test-sha256 test-clone-sha256 &&
+	GIT_DEFAULT_HASH=sha256 git clone test-sha1 test-clone-sha1 &&
+	git -C test-clone-sha1 status &&
+	git -C test-clone-sha256 status
+'
+
 partial_clone_server () {
 	       SERVER="$1" &&