diff --git a/bundle/tests/relative_path_translation/databricks.yml b/bundle/tests/relative_path_translation/databricks.yml
new file mode 100644
index 0000000000..651ff267c5
--- /dev/null
+++ b/bundle/tests/relative_path_translation/databricks.yml
@@ -0,0 +1,33 @@
+bundle:
+  name: relative_path_translation
+
+include:
+  - resources/*.yml
+
+variables:
+  file_path:
+    # This path is expected to be resolved relative to where it is used.
+    default: ../src/file1.py
+
+workspace:
+  file_path: /remote
+
+targets:
+  default:
+    default: true
+
+  override:
+    variables:
+      file_path: ./src/file2.py
+
+    resources:
+      jobs:
+        job:
+          tasks:
+            - task_key: local
+              spark_python_task:
+                python_file: ./src/file2.py
+
+            - task_key: variable_reference
+              spark_python_task:
+                python_file: ${var.file_path}
diff --git a/bundle/tests/relative_path_translation/resources/job.yml b/bundle/tests/relative_path_translation/resources/job.yml
new file mode 100644
index 0000000000..93f121f253
--- /dev/null
+++ b/bundle/tests/relative_path_translation/resources/job.yml
@@ -0,0 +1,14 @@
+resources:
+  jobs:
+    job:
+      tasks:
+        - task_key: local
+          spark_python_task:
+            python_file: ../src/file1.py
+
+        - task_key: variable_reference
+          spark_python_task:
+            # Note: this is a pure variable reference yet needs to persist the location
+            # of the reference, not the location of the variable value.
+            # Also see https://github.com/databricks/cli/issues/1330.
+            python_file: ${var.file_path}
diff --git a/bundle/tests/relative_path_translation/src/file1.py b/bundle/tests/relative_path_translation/src/file1.py
new file mode 100644
index 0000000000..e69de29bb2
diff --git a/bundle/tests/relative_path_translation/src/file2.py b/bundle/tests/relative_path_translation/src/file2.py
new file mode 100644
index 0000000000..e69de29bb2
diff --git a/bundle/tests/relative_path_translation_test.go b/bundle/tests/relative_path_translation_test.go
new file mode 100644
index 0000000000..d5b80bea5f
--- /dev/null
+++ b/bundle/tests/relative_path_translation_test.go
@@ -0,0 +1,53 @@
+package config_tests
+
+import (
+	"context"
+	"testing"
+
+	"github.com/databricks/cli/bundle"
+	"github.com/databricks/cli/bundle/phases"
+	"github.com/databricks/databricks-sdk-go/config"
+	"github.com/databricks/databricks-sdk-go/experimental/mocks"
+	"github.com/databricks/databricks-sdk-go/service/iam"
+	"github.com/stretchr/testify/assert"
+	"github.com/stretchr/testify/mock"
+	"github.com/stretchr/testify/require"
+)
+
+func configureMock(t *testing.T, b *bundle.Bundle) {
+	// Configure mock workspace client
+	m := mocks.NewMockWorkspaceClient(t)
+	m.WorkspaceClient.Config = &config.Config{
+		Host: "https://mock.databricks.workspace.com",
+	}
+	m.GetMockCurrentUserAPI().EXPECT().Me(mock.Anything).Return(&iam.User{
+		UserName: "user@domain.com",
+	}, nil)
+	b.SetWorkpaceClient(m.WorkspaceClient)
+}
+
+func TestRelativePathTranslationDefault(t *testing.T) {
+	b := loadTarget(t, "./relative_path_translation", "default")
+	configureMock(t, b)
+
+	diags := bundle.Apply(context.Background(), b, phases.Initialize())
+	require.NoError(t, diags.Error())
+
+	t0 := b.Config.Resources.Jobs["job"].Tasks[0]
+	assert.Equal(t, "/remote/src/file1.py", t0.SparkPythonTask.PythonFile)
+	t1 := b.Config.Resources.Jobs["job"].Tasks[1]
+	assert.Equal(t, "/remote/src/file1.py", t1.SparkPythonTask.PythonFile)
+}
+
+func TestRelativePathTranslationOverride(t *testing.T) {
+	b := loadTarget(t, "./relative_path_translation", "override")
+	configureMock(t, b)
+
+	diags := bundle.Apply(context.Background(), b, phases.Initialize())
+	require.NoError(t, diags.Error())
+
+	t0 := b.Config.Resources.Jobs["job"].Tasks[0]
+	assert.Equal(t, "/remote/src/file2.py", t0.SparkPythonTask.PythonFile)
+	t1 := b.Config.Resources.Jobs["job"].Tasks[1]
+	assert.Equal(t, "/remote/src/file2.py", t1.SparkPythonTask.PythonFile)
+}
diff --git a/libs/dyn/dynvar/resolve.go b/libs/dyn/dynvar/resolve.go
index b8a0aef625..d2494bc21d 100644
--- a/libs/dyn/dynvar/resolve.go
+++ b/libs/dyn/dynvar/resolve.go
@@ -150,7 +150,12 @@ func (r *resolver) resolveRef(ref ref, seen []string) (dyn.Value, error) {
 	if ref.isPure() && complete {
 		// If the variable reference is pure, we can substitute it.
 		// This is useful for interpolating values of non-string types.
-		return resolved[0], nil
+		//
+		// Note: we use the location of the variable reference to preserve the information
+		// of where it is used. This also means that relative path resolution is done
+		// relative to where a variable is used, not where it is defined.
+		//
+		return dyn.NewValue(resolved[0].Value(), ref.value.Location()), nil
 	}
 
 	// Not pure; perform string interpolation.