diff --git a/builtin/stash.c b/builtin/stash.c
index 24ddb1bffa..3c641cc5cd 100644
--- a/builtin/stash.c
+++ b/builtin/stash.c
@@ -325,35 +325,6 @@ static void add_diff_to_buf(struct diff_queue_struct *q,
 	}
 }
 
-static int get_newly_staged(struct strbuf *out, struct object_id *c_tree)
-{
-	struct child_process cp = CHILD_PROCESS_INIT;
-	const char *c_tree_hex = oid_to_hex(c_tree);
-
-	/*
-	 * diff-index is very similar to diff-tree above, and should be
-	 * converted together with update_index.
-	 */
-	cp.git_cmd = 1;
-	strvec_pushl(&cp.args, "diff-index", "--cached", "--name-only",
-		     "--diff-filter=A", NULL);
-	strvec_push(&cp.args, c_tree_hex);
-	return pipe_command(&cp, NULL, 0, out, 0, NULL, 0);
-}
-
-static int update_index(struct strbuf *out)
-{
-	struct child_process cp = CHILD_PROCESS_INIT;
-
-	/*
-	 * Update-index is very complicated and may need to have a public
-	 * function exposed in order to remove this forking.
-	 */
-	cp.git_cmd = 1;
-	strvec_pushl(&cp.args, "update-index", "--add", "--stdin", NULL);
-	return pipe_command(&cp, out->buf, out->len, NULL, 0, NULL, 0);
-}
-
 static int restore_untracked(struct object_id *u_tree)
 {
 	int res;
@@ -385,6 +356,75 @@ static int restore_untracked(struct object_id *u_tree)
 	return res;
 }
 
+static void unstage_changes_unless_new(struct object_id *orig_tree)
+{
+	/*
+	 * When we enter this function, there has been a clean merge of
+	 * relevant trees, and the merge logic always stages whatever merges
+	 * cleanly.  We want to unstage those changes, unless it corresponds
+	 * to a file that didn't exist as of orig_tree.
+	 */
+
+	struct diff_options diff_opts;
+	struct lock_file lock = LOCK_INIT;
+	int i;
+
+	/*
+	 * Step 1: get a difference between orig_tree (which corresponding
+	 * to the index before a merge was run) and the current index
+	 * (reflecting the changes brought in by the merge).
+	 */
+	diff_setup(&diff_opts);
+	diff_opts.flags.recursive = 1;
+	diff_opts.detect_rename = 0;
+	diff_opts.output_format = DIFF_FORMAT_NO_OUTPUT;
+	diff_setup_done(&diff_opts);
+
+	do_diff_cache(orig_tree, &diff_opts);
+	diffcore_std(&diff_opts);
+
+	/* Iterate over the paths that changed due to the merge... */
+	for (i = 0; i < diff_queued_diff.nr; i++) {
+		struct diff_filepair *p;
+		struct cache_entry *ce;
+		int pos;
+
+		/* Look up the path's position in the current index. */
+		p = diff_queued_diff.queue[i];
+		pos = index_name_pos(&the_index, p->two->path,
+				     strlen(p->two->path));
+
+		/*
+		 * Step 2: "unstage" changes, as long as they are still tracked
+		 */
+		if (p->one->oid_valid) {
+			/*
+			 * Path existed in orig_tree; restore index entry
+			 * from that tree in order to "unstage" the changes.
+			 */
+			int option = ADD_CACHE_OK_TO_REPLACE;
+			if (pos < 0)
+				option = ADD_CACHE_OK_TO_ADD;
+
+			ce = make_cache_entry(&the_index,
+					      p->one->mode,
+					      &p->one->oid,
+					      p->one->path,
+					      0, 0);
+			add_index_entry(&the_index, ce, option);
+		}
+	}
+	diff_flush(&diff_opts);
+
+	/*
+	 * Step 3: write the new index to disk
+	 */
+	repo_hold_locked_index(the_repository, &lock, LOCK_DIE_ON_ERROR);
+	if (write_locked_index(&the_index, &lock,
+			       COMMIT_LOCK | SKIP_IF_UNCHANGED))
+		die(_("Unable to write index."));
+}
+
 static int do_apply_stash(const char *prefix, struct stash_info *info,
 			  int index, int quiet)
 {
@@ -467,26 +507,7 @@ static int do_apply_stash(const char *prefix, struct stash_info *info,
 		if (reset_tree(&index_tree, 0, 0))
 			return -1;
 	} else {
-		struct strbuf out = STRBUF_INIT;
-
-		if (get_newly_staged(&out, &c_tree)) {
-			strbuf_release(&out);
-			return -1;
-		}
-
-		if (reset_tree(&c_tree, 0, 1)) {
-			strbuf_release(&out);
-			return -1;
-		}
-
-		ret = update_index(&out);
-		strbuf_release(&out);
-		if (ret)
-			return -1;
-
-		/* read back the result of update_index() back from the disk */
-		discard_cache();
-		read_cache();
+		unstage_changes_unless_new(&c_tree);
 	}
 
 	if (!quiet) {
diff --git a/t/lib-submodule-update.sh b/t/lib-submodule-update.sh
index bd3fa3c6da..4b714e9308 100644
--- a/t/lib-submodule-update.sh
+++ b/t/lib-submodule-update.sh
@@ -316,14 +316,7 @@ test_submodule_switch_common () {
 	command="$1"
 	######################### Appearing submodule #########################
 	# Switching to a commit letting a submodule appear creates empty dir ...
-	if test "$KNOWN_FAILURE_STASH_DOES_IGNORE_SUBMODULE_CHANGES" = 1
-	then
-		# Restoring stash fails to restore submodule index entry
-		RESULT="failure"
-	else
-		RESULT="success"
-	fi
-	test_expect_$RESULT "$command: added submodule creates empty directory" '
+	test_expect_success "$command: added submodule creates empty directory" '
 		prolog &&
 		reset_work_tree_to no_submodule &&
 		(
@@ -337,6 +330,13 @@ test_submodule_switch_common () {
 		)
 	'
 	# ... and doesn't care if it already exists.
+	if test "$KNOWN_FAILURE_STASH_DOES_IGNORE_SUBMODULE_CHANGES" = 1
+	then
+		# Restoring stash fails to restore submodule index entry
+		RESULT="failure"
+	else
+		RESULT="success"
+	fi
 	test_expect_$RESULT "$command: added submodule leaves existing empty directory alone" '
 		prolog &&
 		reset_work_tree_to no_submodule &&