diff --git a/.github/workflows/quality.yaml b/.github/workflows/quality.yaml
index 9ee00d8d7..61600189a 100644
--- a/.github/workflows/quality.yaml
+++ b/.github/workflows/quality.yaml
@@ -106,6 +106,9 @@ jobs:
       - name: Test agent compilation components
         run: npm run test:install
 
+      - name: Test module extension installer
+        run: npm run test:install:extensions
+
       - name: Validate file references
         run: npm run validate:refs
 
diff --git a/package.json b/package.json
index 1eb1df26e..ab58823fa 100644
--- a/package.json
+++ b/package.json
@@ -41,8 +41,9 @@
     "prepare": "command -v husky >/dev/null 2>&1 && husky || exit 0",
     "quality": "npm run format:check && npm run lint && npm run lint:md && npm run docs:build && npm run test:install && npm run validate:refs && npm run validate:skills",
     "rebundle": "node tools/cli/bundlers/bundle-web.js rebundle",
-    "test": "npm run test:refs && npm run test:install && npm run lint && npm run lint:md && npm run format:check",
+    "test": "npm run test:refs && npm run test:install && npm run test:install:extensions && npm run lint && npm run lint:md && npm run format:check",
     "test:install": "node test/test-installation-components.js",
+    "test:install:extensions": "node test/test-installation-extensions.js",
     "test:refs": "node test/test-file-refs-csv.js",
     "validate:refs": "node tools/validate-file-refs.js --strict",
     "validate:skills": "node tools/validate-skills.js --strict"
diff --git a/test/test-installation-extensions.js b/test/test-installation-extensions.js
new file mode 100644
index 000000000..c96722e74
--- /dev/null
+++ b/test/test-installation-extensions.js
@@ -0,0 +1,369 @@
+/**
+ * Extension Module Merge Tests — Issue #1667
+ *
+ * Verifies that a custom extension module with `code: bmm` in its module.yaml
+ * merges its files into the base BMM installation instead of replacing the
+ * entire directory.
+ *
+ * Expected behavior (file-level merge):
+ *   - Files with the same name → extension overrides base
+ *   - Files with unique names  → extension adds alongside base
+ *
+ * Usage: node test/test-installation-extensions.js
+ */
+
+const path = require('node:path');
+const os = require('node:os');
+const fs = require('fs-extra');
+const { ModuleManager } = require('../tools/cli/installers/lib/modules/manager');
+
+// ANSI colors (match existing test files)
+const colors = {
+  reset: '\u001B[0m',
+  green: '\u001B[32m',
+  red: '\u001B[31m',
+  yellow: '\u001B[33m',
+  cyan: '\u001B[36m',
+  dim: '\u001B[2m',
+};
+
+let passed = 0;
+let failed = 0;
+
+function assert(condition, testName, errorMessage = '') {
+  if (condition) {
+    console.log(`${colors.green}✓${colors.reset} ${testName}`);
+    passed++;
+  } else {
+    console.log(`${colors.red}✗${colors.reset} ${testName}`);
+    if (errorMessage) console.log(`  ${colors.dim}${errorMessage}${colors.reset}`);
+    failed++;
+    throw new Error(`${testName}${errorMessage ? ': ' + errorMessage : ''}`);
+  }
+}
+
+/**
+ * Build a minimal compiled agent .md file (no YAML compilation needed).
+ */
+function minimalAgentMd(name) {
+  return ['---', `name: "${name}"`, `description: "Test agent: ${name}"`, '---', '', `You are ${name}.`].join('\n');
+}
+
+/**
+ * Create a fake base module source directory that looks like src/bmm/.
+ * Only files relevant to the merge test are created (agents directory).
+ */
+async function createBaseModuleSource(tmpDir) {
+  const src = path.join(tmpDir, 'src-base');
+
+  // module.yaml
+  await fs.ensureDir(src);
+  await fs.writeFile(path.join(src, 'module.yaml'), 'name: BMM\ncode: bmm\nversion: 6.0.0\n');
+
+  // agents: analyst + pm (standard base agents)
+  await fs.ensureDir(path.join(src, 'agents'));
+  await fs.writeFile(path.join(src, 'agents', 'analyst.md'), minimalAgentMd('analyst'));
+  await fs.writeFile(path.join(src, 'agents', 'pm.md'), minimalAgentMd('pm'));
+
+  return src;
+}
+
+/**
+ * Create a fake extension module source directory (simulates a user's
+ * custom module with code: bmm in its module.yaml).
+ *
+ * Includes:
+ *   - pm.md       → should OVERRIDE the base pm.md
+ *   - my-agent.md → unique name, should be ADDED alongside base agents
+ */
+async function createExtensionModuleSource(tmpDir) {
+  const src = path.join(tmpDir, 'src-extension');
+
+  await fs.ensureDir(src);
+  await fs.writeFile(path.join(src, 'module.yaml'), 'name: My Extension\ncode: bmm\nversion: 1.0.0\n');
+
+  await fs.ensureDir(path.join(src, 'agents'));
+  await fs.writeFile(path.join(src, 'agents', 'pm.md'), minimalAgentMd('pm-override'));
+  await fs.writeFile(path.join(src, 'agents', 'my-agent.md'), minimalAgentMd('my-agent'));
+
+  return src;
+}
+
+/**
+ * Create a minimal manifest so manager.install() can record module metadata.
+ */
+async function createMinimalManifest(bmadDir) {
+  await fs.ensureDir(path.join(bmadDir, '_config'));
+  await fs.writeFile(
+    path.join(bmadDir, '_config', 'manifest.yaml'),
+    'installation:\n  version: "0.0.0"\n  installDate: "2026-01-01T00:00:00.000Z"\n  lastUpdated: "2026-01-01T00:00:00.000Z"\nmodules: []\nides: []\n',
+  );
+}
+
+async function runTests() {
+  console.log(`${colors.cyan}========================================`);
+  console.log('Extension Module Merge — Issue #1667');
+  console.log(`========================================${colors.reset}\n`);
+
+  // ─────────────────────────────────────────────────────────────────────────
+  // Test 1: isExtension:false (default) — second install replaces directory
+  // (confirms the bug existed: without the fix, extension would wipe base)
+  // ─────────────────────────────────────────────────────────────────────────
+  console.log(`${colors.yellow}Scenario A: install without isExtension (replacement mode)${colors.reset}\n`);
+
+  {
+    const tmpDir = await fs.mkdtemp(path.join(os.tmpdir(), 'bmad-ext-test-'));
+    try {
+      const baseSrc = await createBaseModuleSource(tmpDir);
+      const extSrc = await createExtensionModuleSource(tmpDir);
+      const bmadDir = path.join(tmpDir, '_bmad');
+      const targetPath = path.join(bmadDir, 'bmm');
+
+      await createMinimalManifest(bmadDir);
+      const manager = new ModuleManager();
+
+      // Step 1: Install base module via manager.install()
+      manager.setCustomModulePaths(new Map([['bmm', baseSrc]]));
+      await manager.install('bmm', bmadDir, null, { silent: true, skipModuleInstaller: true });
+
+      // Step 2: Install extension WITHOUT isExtension flag (old/broken behavior: wipes directory)
+      manager.setCustomModulePaths(new Map([['bmm', extSrc]]));
+      await manager.install('bmm', bmadDir, null, { silent: true, skipModuleInstaller: true });
+
+      const analystExists = await fs.pathExists(path.join(targetPath, 'agents', 'analyst.md'));
+      const myAgentExists = await fs.pathExists(path.join(targetPath, 'agents', 'my-agent.md'));
+
+      assert(!analystExists, 'Without fix: base analyst.md is GONE (replacement behavior confirmed)');
+      assert(myAgentExists, 'Without fix: extension my-agent.md is present');
+    } finally {
+      await fs.remove(tmpDir);
+    }
+  }
+
+  console.log('');
+
+  // ─────────────────────────────────────────────────────────────────────────
+  // Test 2: isExtension:true (the fix) — extension merges on top of base
+  // ─────────────────────────────────────────────────────────────────────────
+  console.log(`${colors.yellow}Scenario B: install with isExtension:true (merge mode — the fix)${colors.reset}\n`);
+
+  {
+    const tmpDir = await fs.mkdtemp(path.join(os.tmpdir(), 'bmad-ext-test-'));
+    try {
+      const baseSrc = await createBaseModuleSource(tmpDir);
+      const extSrc = await createExtensionModuleSource(tmpDir);
+      const bmadDir = path.join(tmpDir, '_bmad');
+      const targetPath = path.join(bmadDir, 'bmm');
+
+      await createMinimalManifest(bmadDir);
+      const manager = new ModuleManager();
+
+      // Step 1: Install base module via manager.install()
+      manager.setCustomModulePaths(new Map([['bmm', baseSrc]]));
+      await manager.install('bmm', bmadDir, null, { silent: true, skipModuleInstaller: true });
+
+      // Step 2: Install extension with isExtension:true → should MERGE on top of base
+      manager.setCustomModulePaths(new Map([['bmm', extSrc]]));
+      await manager.install('bmm', bmadDir, null, { isExtension: true, silent: true, skipModuleInstaller: true });
+
+      const analystExists = await fs.pathExists(path.join(targetPath, 'agents', 'analyst.md'));
+      const myAgentExists = await fs.pathExists(path.join(targetPath, 'agents', 'my-agent.md'));
+      const pmContent = await fs.readFile(path.join(targetPath, 'agents', 'pm.md'), 'utf8');
+
+      assert(analystExists, 'Base analyst.md is PRESERVED after extension install');
+      assert(myAgentExists, 'Extension my-agent.md is ADDED alongside base agents');
+      assert(pmContent.includes('pm-override'), 'Extension pm.md OVERRIDES base pm.md (same-name wins)');
+    } finally {
+      await fs.remove(tmpDir);
+    }
+  }
+
+  console.log('');
+
+  // ─────────────────────────────────────────────────────────────────────────
+  // Test 3: ModuleManager.install() with isExtension:true via options
+  // ─────────────────────────────────────────────────────────────────────────
+  console.log(`${colors.yellow}Scenario C: ModuleManager.install() respects isExtension option${colors.reset}\n`);
+
+  {
+    const tmpDir = await fs.mkdtemp(path.join(os.tmpdir(), 'bmad-ext-test-'));
+    try {
+      const baseSrc = await createBaseModuleSource(tmpDir);
+      const bmadDir = path.join(tmpDir, '_bmad');
+      const targetPath = path.join(bmadDir, 'bmm');
+
+      await createMinimalManifest(bmadDir);
+      const manager = new ModuleManager();
+      manager.setCustomModulePaths(new Map([['bmm', baseSrc]]));
+
+      // Install base so target directory exists
+      await manager.install('bmm', bmadDir, null, { silent: true, skipModuleInstaller: true });
+
+      // Add a sentinel file that simulates a file the user placed in the installed module
+      await fs.writeFile(path.join(targetPath, 'sentinel.txt'), 'user data');
+      assert(await fs.pathExists(path.join(targetPath, 'sentinel.txt')), 'Pre-condition: sentinel.txt exists before extension install');
+
+      // With isExtension:true → fs.remove is skipped; sentinel must survive
+      await manager.install('bmm', bmadDir, null, { isExtension: true, silent: true, skipModuleInstaller: true });
+      assert(
+        await fs.pathExists(path.join(targetPath, 'sentinel.txt')),
+        'With isExtension:true: sentinel.txt PRESERVED (fs.remove was skipped)',
+      );
+
+      // Without isExtension → fs.remove runs; sentinel must be gone
+      await manager.install('bmm', bmadDir, null, { silent: true, skipModuleInstaller: true });
+      assert(
+        !(await fs.pathExists(path.join(targetPath, 'sentinel.txt'))),
+        'Without isExtension: sentinel.txt REMOVED (directory was cleared by fs.remove)',
+      );
+    } finally {
+      await fs.remove(tmpDir);
+    }
+  }
+
+  console.log('');
+
+  // ─────────────────────────────────────────────────────────────────────────
+  // Test 4 (E2E): installModuleWithDependencies → base install, then
+  //               moduleManager.install with isExtension:true → merge
+  // ─────────────────────────────────────────────────────────────────────────
+  console.log(
+    `${colors.yellow}Scenario D: E2E install — base via installModuleWithDependencies, extension via moduleManager.install${colors.reset}\n`,
+  );
+
+  {
+    const { Installer } = require('../tools/cli/installers/lib/core/installer');
+    const tmpDir = await fs.mkdtemp(path.join(os.tmpdir(), 'bmad-e2e-test-'));
+    try {
+      const baseSrc = await createBaseModuleSource(tmpDir);
+      const extSrc = await createExtensionModuleSource(tmpDir);
+      const bmadDir = path.join(tmpDir, '_bmad');
+
+      // Pre-create a minimal manifest so moduleManager.install can record the module
+      await createMinimalManifest(bmadDir);
+
+      const installer = new Installer();
+
+      // Stub the resolver: point 'bmm' at the fake base source
+      installer.moduleManager.setCustomModulePaths(new Map([['bmm', baseSrc]]));
+
+      // Step 1: Install base module via the public installModuleWithDependencies
+      await installer.installModuleWithDependencies('bmm', bmadDir, {});
+
+      const targetPath = path.join(bmadDir, 'bmm');
+      assert(
+        await fs.pathExists(path.join(targetPath, 'agents', 'analyst.md')),
+        'E2E: after base install via installModuleWithDependencies — analyst.md is present',
+      );
+      assert(
+        await fs.pathExists(path.join(targetPath, 'agents', 'pm.md')),
+        'E2E: after base install via installModuleWithDependencies — pm.md is present',
+      );
+
+      // Step 2: Re-stub the resolver to point to the extension source, then install
+      // the extension with isExtension:true so it merges on top of the base
+      installer.moduleManager.setCustomModulePaths(new Map([['bmm', extSrc]]));
+      await installer.moduleManager.install('bmm', bmadDir, null, {
+        isExtension: true,
+        skipModuleInstaller: true,
+        silent: true,
+      });
+
+      // Assert merged output: base files preserved, extension files added/overridden
+      assert(
+        await fs.pathExists(path.join(targetPath, 'agents', 'analyst.md')),
+        'E2E: base analyst.md is PRESERVED after extension install (merge, not replace)',
+      );
+      assert(
+        await fs.pathExists(path.join(targetPath, 'agents', 'my-agent.md')),
+        'E2E: extension my-agent.md is ADDED alongside base agents',
+      );
+      const pmContent = await fs.readFile(path.join(targetPath, 'agents', 'pm.md'), 'utf8');
+      assert(pmContent.includes('pm-override'), 'E2E: extension pm.md OVERRIDES base pm.md (same-name wins)');
+
+      // Verify manifest has exactly one 'bmm' entry (no duplicates)
+      const yaml = require('yaml');
+      const manifestRaw = await fs.readFile(path.join(bmadDir, '_config', 'manifest.yaml'), 'utf8');
+      const manifest = yaml.parse(manifestRaw);
+      const bmmEntries = (manifest.modules || []).filter((m) => m.name === 'bmm');
+      assert(bmmEntries.length === 1, 'E2E: manifest contains exactly one bmm entry (no duplicates)');
+    } finally {
+      await fs.remove(tmpDir);
+    }
+  }
+
+  console.log('');
+
+  // ─────────────────────────────────────────────────────────────────────────
+  // Test 5 (E2E update): user-modified files are preserved when extension
+  //                      overlay is applied with isExtension:true
+  // ─────────────────────────────────────────────────────────────────────────
+  console.log(`${colors.yellow}Scenario E: user-modified sentinel file is preserved during extension overlay${colors.reset}\n`);
+
+  {
+    const { Installer } = require('../tools/cli/installers/lib/core/installer');
+    const tmpDir = await fs.mkdtemp(path.join(os.tmpdir(), 'bmad-e2e-update-'));
+    try {
+      const baseSrc = await createBaseModuleSource(tmpDir);
+      const extSrc = await createExtensionModuleSource(tmpDir);
+      const bmadDir = path.join(tmpDir, '_bmad');
+
+      await createMinimalManifest(bmadDir);
+      const installer = new Installer();
+      installer.moduleManager.setCustomModulePaths(new Map([['bmm', baseSrc]]));
+
+      // Step 1: Install base module
+      await installer.installModuleWithDependencies('bmm', bmadDir, {});
+
+      const targetPath = path.join(bmadDir, 'bmm');
+
+      // Step 2: Simulate a user adding a file to the installed module
+      await fs.writeFile(path.join(targetPath, 'user-modified.txt'), 'my custom content');
+      // Also record the original pm.md content so we can confirm the extension overrides it
+      assert(
+        await fs.pathExists(path.join(targetPath, 'agents', 'analyst.md')),
+        'Update pre-condition: base analyst.md is present before extension overlay',
+      );
+
+      // Step 3: Apply extension overlay (isExtension:true → skip fs.remove)
+      installer.moduleManager.setCustomModulePaths(new Map([['bmm', extSrc]]));
+      await installer.moduleManager.install('bmm', bmadDir, null, {
+        isExtension: true,
+        skipModuleInstaller: true,
+        silent: true,
+      });
+
+      // User-added file must survive because isExtension skips directory removal
+      assert(
+        await fs.pathExists(path.join(targetPath, 'user-modified.txt')),
+        'Update: user-modified.txt is PRESERVED (extension overlay did not wipe the directory)',
+      );
+      // Base file must also survive
+      assert(
+        await fs.pathExists(path.join(targetPath, 'agents', 'analyst.md')),
+        'Update: base analyst.md is PRESERVED after extension overlay',
+      );
+      // Extension-specific file must be present
+      assert(await fs.pathExists(path.join(targetPath, 'agents', 'my-agent.md')), 'Update: extension my-agent.md is ADDED by the overlay');
+      // Extension pm.md overrides the base version
+      const pmUpdated = await fs.readFile(path.join(targetPath, 'agents', 'pm.md'), 'utf8');
+      assert(pmUpdated.includes('pm-override'), 'Update: extension pm.md OVERRIDES base pm.md during overlay');
+    } finally {
+      await fs.remove(tmpDir);
+    }
+  }
+
+  // ─────────────────────────────────────────────────────────────────────────
+  // Summary
+  // ─────────────────────────────────────────────────────────────────────────
+  console.log(`\n${colors.cyan}========================================${colors.reset}`);
+  console.log(`Results: ${colors.green}${passed} passed${colors.reset}, ${failed > 0 ? colors.red : ''}${failed} failed${colors.reset}`);
+  console.log(`${colors.cyan}========================================${colors.reset}\n`);
+
+  if (failed > 0) process.exit(1);
+}
+
+runTests().catch((error) => {
+  console.error(`${colors.red}Unexpected error:${colors.reset}`, error);
+  process.exit(1);
+});
diff --git a/tools/cli/installers/lib/core/installer.js b/tools/cli/installers/lib/core/installer.js
index 217da91ec..7758b04fa 100644
--- a/tools/cli/installers/lib/core/installer.js
+++ b/tools/cli/installers/lib/core/installer.js
@@ -997,6 +997,45 @@ class Installer {
                   this.moduleManager.setCustomModulePaths(customModulePaths);
                 }
 
+                // Check if this custom module extends a built-in/external base module.
+                // If a base source exists at a different path, install it first so the
+                // extension merges on top instead of replacing the entire directory (#1667).
+                const customSourcePath = customModulePaths.get(moduleName);
+                // Temporarily remove the custom path so findModuleSource resolves the real
+                // base, including external official modules that getModulePath() misses.
+                customModulePaths.delete(moduleName);
+                this.moduleManager.setCustomModulePaths(customModulePaths);
+                let hasBaseModule = false;
+                try {
+                  const baseSourcePath = await this.moduleManager.findModuleSource(moduleName, { silent: true });
+                  hasBaseModule =
+                    !!customSourcePath &&
+                    !!baseSourcePath &&
+                    baseSourcePath !== customSourcePath &&
+                    (await fs.pathExists(path.join(baseSourcePath, 'module.yaml')));
+
+                  if (hasBaseModule) {
+                    // Install the base module first (clean install, removes any prior version).
+                    // Custom path is already cleared above so findModuleSource resolves to the base.
+                    if (resolution && resolution.byModule && resolution.byModule[moduleName]) {
+                      await this.installModuleWithDependencies(moduleName, bmadDir, resolution.byModule[moduleName]);
+                    } else {
+                      await this.moduleManager.install(
+                        moduleName,
+                        bmadDir,
+                        (filePath) => {
+                          this.installedFiles.add(filePath);
+                        },
+                        { installer: this, silent: true, moduleConfig: {} },
+                      );
+                    }
+                  }
+                } finally {
+                  // Always restore the custom path so the extension overlay resolves correctly.
+                  customModulePaths.set(moduleName, customSourcePath);
+                  this.moduleManager.setCustomModulePaths(customModulePaths);
+                }
+
                 const collectedModuleConfig = moduleConfigs[moduleName] || {};
                 await this.moduleManager.install(
                   moduleName,
@@ -1006,6 +1045,7 @@ class Installer {
                   },
                   {
                     isCustom: true,
+                    isExtension: hasBaseModule, // merge on top of base when extending
                     moduleConfig: collectedModuleConfig,
                     isQuickUpdate: isQuickUpdate,
                     installer: this,
diff --git a/tools/cli/installers/lib/modules/manager.js b/tools/cli/installers/lib/modules/manager.js
index 17a320c44..600f2013b 100644
--- a/tools/cli/installers/lib/modules/manager.js
+++ b/tools/cli/installers/lib/modules/manager.js
@@ -453,7 +453,10 @@ class ModuleManager {
     }
 
     // Check if already installed
-    if (await fs.pathExists(targetPath)) {
+    // When isExtension is true, the caller is merging an extension module on top
+    // of an already-installed base module (same code). Skip removal so that base
+    // files are preserved and the extension's files overlay at the file level.
+    if ((await fs.pathExists(targetPath)) && !options.isExtension) {
       await fs.remove(targetPath);
     }