diff --git a/scripts/package/Makefile b/scripts/package/Makefile
index fa4a0a1..f67cc88 100644
--- a/scripts/package/Makefile
+++ b/scripts/package/Makefile
@@ -18,6 +18,9 @@
 # e) generate the rpm files, based on kernel.spec
 # - Use /. to avoid tar packing just the symlink
 
+# Note that the rpm-pkg target cannot be used with KBUILD_OUTPUT,
+# but the binrpm-pkg target can; for some reason O= gets ignored.
+
 # Do we have rpmbuild, otherwise fall back to the older rpm
 RPM := $(shell if [ -x "/usr/bin/rpmbuild" ]; then echo rpmbuild; \
 	           else echo rpm; fi)
@@ -33,6 +36,12 @@
 	$(CONFIG_SHELL) $(MKSPEC) > $@
 
 rpm-pkg rpm: $(objtree)/kernel.spec FORCE
+	@if test -n "$(KBUILD_OUTPUT)"; then \
+		echo "Building source + binary RPM is not possible outside the"; \
+		echo "kernel source tree. Don't set KBUILD_OUTPUT, or use the"; \
+		echo "binrpm-pkg target instead."; \
+		false; \
+	fi
 	$(MAKE) clean
 	$(PREV) ln -sf $(srctree) $(KERNELPATH)
 	$(CONFIG_SHELL) $(srctree)/scripts/setlocalversion > $(objtree)/.scmversion
@@ -61,7 +70,7 @@
 	set -e; \
 	mv -f $(objtree)/.tmp_version $(objtree)/.version
 
-	$(RPM) $(RPMOPTS) --define "_builddir $(srctree)" --target \
+	$(RPM) $(RPMOPTS) --define "_builddir $(objtree)" --target \
 		$(UTS_MACHINE) -bb $<
 
 clean-files += $(objtree)/binkernel.spec
diff --git a/scripts/package/mkspec b/scripts/package/mkspec
index 3d93f8c..47bdd2f 100755
--- a/scripts/package/mkspec
+++ b/scripts/package/mkspec
@@ -70,7 +70,7 @@
 echo 'mkdir -p $RPM_BUILD_ROOT/lib/firmware'
 echo "%endif"
 
-echo 'INSTALL_MOD_PATH=$RPM_BUILD_ROOT make %{_smp_mflags} modules_install'
+echo 'INSTALL_MOD_PATH=$RPM_BUILD_ROOT make %{_smp_mflags} KBUILD_SRC= modules_install'
 echo "%ifarch ia64"
 echo 'cp $KBUILD_IMAGE $RPM_BUILD_ROOT'"/boot/efi/vmlinuz-$KERNELRELEASE"
 echo 'ln -s '"efi/vmlinuz-$KERNELRELEASE" '$RPM_BUILD_ROOT'"/boot/"