Description

Please see the steps below.

Steps To Reproduce

1. With these compose.yaml, dir/included.yaml and dir/extended.yaml files:

---
# compose.yaml
include:
  - project_directory: .
    path: dir/included.yaml

---
# dir/included.yaml
services:
  included:
    extends:
      file: dir/extended.yaml
      service: extended

---
# dir/extended.yaml
services:
  extended:
    image: image

2. Observe the output of the config command when ran from . or dir:

$ docker compose config 
name: proj-dir
services:
  included:
    image: image
    networks:
      default: null
networks:
  default:
    name: proj-dir_default

$ env -C dir docker compose config 
cannot read dir/extended.yaml

Compose Version

Docker Compose version v2.24.6

Docker Environment

No response

Anything else?

Furthermore, in case of "double extends", I mean if dir/extended.yaml would look ... "as expected" ... like this:

services:
  extended:
    extends:
      file: dir/base.yaml
      service: base

with dir/base.yaml like this:

services:
  base:
    image: image

it would lead to:

$ docker compose config
cannot read dir/dir/base.yaml

Which could be fixed by mixing both ways of referring to files in dir, but ... I guess this has to wait and see if the very first extend was indeed supposed to be relative to the customized project directory anyway ...