diff --git a/NEWS b/NEWS
index 171a437f53c..b723e8a1166 100644
--- a/NEWS
+++ b/NEWS
@@ -81,6 +81,7 @@ PHP                                                                        NEWS
 - Windows:
   . Fixed bug GH-10992 (Improper long path support for relative paths). (cmb,
     nielsdos)
+  . Fixed bug GH-16843 (Windows phpize builds ignore source subfolders). (cmb)
 
 - XMLWriter:
   . Improved performance and reduce memory consumption. (nielsdos)
diff --git a/UPGRADING b/UPGRADING
index 37538739d6a..4b37e3e41a4 100644
--- a/UPGRADING
+++ b/UPGRADING
@@ -166,6 +166,10 @@ PHP 8.5 UPGRADE NOTES
   PHP_RELEASE_VERSION are now always numbers.  Previously, they have been
   strings for buildconf builds.
 
+* phpize builds now reflect the source tree in the build dir (like that already
+  worked for in-tree builds); some extension builds (especially when using
+  Makefile.frag.w32) may need adjustments.
+
 * --enable-sanitzer is now supported for MSVC builds.  This enables ASan and
   debug assertions, and is supported as of MSVC 16.10 and Windows 10.
 
diff --git a/win32/build/confutils.js b/win32/build/confutils.js
index 438eb1d239c..cf1010266f2 100644
--- a/win32/build/confutils.js
+++ b/win32/build/confutils.js
@@ -1616,8 +1616,15 @@ function ADD_SOURCES(dir, file_list, target, obj_dir)
 		if (obj_dir == null) {
 			if (MODE_PHPIZE) {
 				/* In the phpize mode, the subdirs are always relative to BUID_DIR.
-					No need to differentiate by extension, only one gets built. */
-				var build_dir = (dirname ? dirname : "").replace(new RegExp("^..\\\\"), "");
+					No need to differentiate by extension, only one gets built.
+					We still need to cater to subfolders, though. */
+				if (dir.charAt(configure_module_dirname.length) === "\\" &&
+					dir.substr(0, configure_module_dirname.length) === configure_module_dirname) {
+					var reldir = dir.substr(configure_module_dirname.length + 1);
+					var build_dir = (dirname ? (reldir + "\\" + dirname) : reldir).replace(new RegExp("^..\\\\"), "");
+				} else {
+					var build_dir = (dirname ? dirname : "").replace(new RegExp("^..\\\\"), "");
+				}
 			} else {
 				var build_dir = (dirname ? (dir + "\\" + dirname) : dir).replace(new RegExp("^..\\\\"), "");
 			}