diff --git a/ivy/src/main/scala/sbt/CircularDependencyLevel.scala b/ivy/src/main/scala/sbt/CircularDependencyLevel.scala
new file mode 100644
index 000000000..3c2f62bc6
--- /dev/null
+++ b/ivy/src/main/scala/sbt/CircularDependencyLevel.scala
@@ -0,0 +1,27 @@
+package sbt
+
+import org.apache.ivy.plugins.circular.{ CircularDependencyStrategy, WarnCircularDependencyStrategy, IgnoreCircularDependencyStrategy, ErrorCircularDependencyStrategy }
+
+/**
+ * Wrapper around circular dependency strategy.
+ */
+sealed trait CircularDependencyLevel {
+  private[sbt] def ivyStrategy: CircularDependencyStrategy
+  private[sbt] def name: String
+  override def toString: String = name
+}
+
+object CircularDependencyLevel {
+  val Warn: CircularDependencyLevel = new CircularDependencyLevel {
+    def ivyStrategy: CircularDependencyStrategy = WarnCircularDependencyStrategy.getInstance
+    def name: String = "warn"
+  }
+  val Ignore: CircularDependencyLevel = new CircularDependencyLevel {
+    def ivyStrategy: CircularDependencyStrategy = IgnoreCircularDependencyStrategy.getInstance
+    def name: String = "ignore"
+  }
+  val Error: CircularDependencyLevel = new CircularDependencyLevel {
+    def ivyStrategy: CircularDependencyStrategy = ErrorCircularDependencyStrategy.getInstance
+    def name: String = "error"
+  }
+}
diff --git a/ivy/src/main/scala/sbt/Ivy.scala b/ivy/src/main/scala/sbt/Ivy.scala
index 55a596bbc..cc39ab42e 100644
--- a/ivy/src/main/scala/sbt/Ivy.scala
+++ b/ivy/src/main/scala/sbt/Ivy.scala
@@ -69,6 +69,7 @@ final class IvySbt(val configuration: IvyConfiguration) {
     {
       val is = new IvySettings
       is.setBaseDir(baseDirectory)
+      is.setCircularDependencyStrategy(configuration.updateOptions.circularDependencyLevel.ivyStrategy)
       CustomPomParser.registerDefault
       configuration match {
         case e: ExternalIvyConfiguration =>
diff --git a/ivy/src/main/scala/sbt/UpdateOptions.scala b/ivy/src/main/scala/sbt/UpdateOptions.scala
index dd4c83f47..d3bf28bfc 100644
--- a/ivy/src/main/scala/sbt/UpdateOptions.scala
+++ b/ivy/src/main/scala/sbt/UpdateOptions.scala
@@ -10,25 +10,33 @@ import java.io.File
  * See also UpdateConfiguration in IvyActions.scala.
  */
 final class UpdateOptions private[sbt] (
+    /** If set to CircularDependencyLevel.Error, halt the dependency resolution. */
+    val circularDependencyLevel: CircularDependencyLevel,
     /** If set to true, check all resolvers for snapshots. */
     val latestSnapshots: Boolean,
     /** If set to true, use consolidated resolution. */
     val consolidatedResolution: Boolean) {
 
+  def withCircularDependencyLevel(circularDependencyLevel: CircularDependencyLevel): UpdateOptions =
+    copy(circularDependencyLevel = circularDependencyLevel)
   def withLatestSnapshots(latestSnapshots: Boolean): UpdateOptions =
     copy(latestSnapshots = latestSnapshots)
   def withConsolidatedResolution(consolidatedResolution: Boolean): UpdateOptions =
     copy(consolidatedResolution = consolidatedResolution)
 
   private[sbt] def copy(
+    circularDependencyLevel: CircularDependencyLevel = this.circularDependencyLevel,
     latestSnapshots: Boolean = this.latestSnapshots,
     consolidatedResolution: Boolean = this.consolidatedResolution): UpdateOptions =
-    new UpdateOptions(latestSnapshots, consolidatedResolution)
+    new UpdateOptions(circularDependencyLevel,
+      latestSnapshots,
+      consolidatedResolution)
 }
 
 object UpdateOptions {
   def apply(): UpdateOptions =
     new UpdateOptions(
+      circularDependencyLevel = CircularDependencyLevel.Warn,
       latestSnapshots = true,
       consolidatedResolution = false)
 }
diff --git a/notes/0.13.7/circular-dependency.md b/notes/0.13.7/circular-dependency.md
new file mode 100644
index 000000000..b0d9e391f
--- /dev/null
+++ b/notes/0.13.7/circular-dependency.md
@@ -0,0 +1,7 @@
+  [@eed3si9n]: https://github.com/eed3si9n
+
+### Circular dependency
+
+By default circular dependencies are warned, but they do not halt the dependency resolution. Using the following setting, circular dependencies can be treated as an error.
+
+    updateOptions := updateOptions.value.withCircularDependencyLevel(CircularDependencyLevel.Error)
diff --git a/sbt/src/sbt-test/dependency-management/circular-dependency/changes/multi.sbt b/sbt/src/sbt-test/dependency-management/circular-dependency/changes/multi.sbt
new file mode 100644
index 000000000..e2a312aa6
--- /dev/null
+++ b/sbt/src/sbt-test/dependency-management/circular-dependency/changes/multi.sbt
@@ -0,0 +1,40 @@
+lazy val check = taskKey[Unit]("Runs the check")
+
+def commonSettings: Seq[Def.Setting[_]] =
+  Seq(
+    ivyPaths := new IvyPaths( (baseDirectory in ThisBuild).value, Some((target in LocalRootProject).value / "ivy-cache")),
+    scalaVersion := "2.10.4",
+    updateOptions := updateOptions.value.withCircularDependencyLevel(CircularDependencyLevel.Error)
+  )
+
+lazy val a = project.
+  settings(commonSettings: _*).
+  settings(
+    name := "a",
+    libraryDependencies := Seq(
+      "commons-io" % "commons-io" % "1.3",
+      organization.value %% "c" % version.value
+    )
+  )
+
+lazy val b = project.
+  settings(commonSettings: _*).
+  settings(
+    name := "b",
+    // this adds circular dependency
+    libraryDependencies := Seq(organization.value %% "c" % version.value)
+  )
+
+lazy val c = project.
+  settings(commonSettings: _*).
+  settings(
+    name := "c",
+    libraryDependencies := Seq(organization.value %% "b" % version.value)
+  )
+
+lazy val root = (project in file(".")).
+  settings(commonSettings: _*).
+  settings(
+    organization in ThisBuild := "org.example",
+    version in ThisBuild := "1.0-SNAPSHOT"
+  )
diff --git a/sbt/src/sbt-test/dependency-management/circular-dependency/multi.sbt b/sbt/src/sbt-test/dependency-management/circular-dependency/multi.sbt
new file mode 100644
index 000000000..947217506
--- /dev/null
+++ b/sbt/src/sbt-test/dependency-management/circular-dependency/multi.sbt
@@ -0,0 +1,36 @@
+lazy val check = taskKey[Unit]("Runs the check")
+
+def commonSettings: Seq[Def.Setting[_]] =
+  Seq(
+    ivyPaths := new IvyPaths( (baseDirectory in ThisBuild).value, Some((target in LocalRootProject).value / "ivy-cache")),
+    scalaVersion := "2.10.4"
+  )
+
+lazy val a = project.
+  settings(commonSettings: _*).
+  settings(
+    name := "a",
+    libraryDependencies := Seq(
+      "commons-io" % "commons-io" % "1.3"
+    )
+  )
+
+lazy val b = project.
+  settings(commonSettings: _*).
+  settings(
+    name := "b"
+  )
+
+lazy val c = project.
+  settings(commonSettings: _*).
+  settings(
+    name := "c",
+    libraryDependencies := Seq(organization.value %% "b" % version.value)
+  )
+
+lazy val root = (project in file(".")).
+  settings(commonSettings: _*).
+  settings(
+    organization in ThisBuild := "org.example",
+    version in ThisBuild := "1.0-SNAPSHOT"
+  )
diff --git a/sbt/src/sbt-test/dependency-management/circular-dependency/test b/sbt/src/sbt-test/dependency-management/circular-dependency/test
new file mode 100644
index 000000000..4feaf57a2
--- /dev/null
+++ b/sbt/src/sbt-test/dependency-management/circular-dependency/test
@@ -0,0 +1,13 @@
+> a/publishLocal
+
+> b/publishLocal
+
+> c/publishLocal
+
+$ copy-file changes/multi.sbt multi.sbt
+
+> reload
+
+-> b/publishLocal
+
+> a/publishLocal