diff --git a/modules/swagger-parser/pom.xml b/modules/swagger-parser/pom.xml
index 012f527224..48a6882ef8 100644
--- a/modules/swagger-parser/pom.xml
+++ b/modules/swagger-parser/pom.xml
@@ -20,6 +20,7 @@
                         <artifactId>maven-surefire-plugin</artifactId>
                         <configuration>
                             <groups>single</groups>
+                            <workingDirectory>.</workingDirectory>
                         </configuration>
                     </plugin>
                 </plugins>
diff --git a/modules/swagger-parser/src/main/java/io/swagger/parser/util/SwaggerDeserializer.java b/modules/swagger-parser/src/main/java/io/swagger/parser/util/SwaggerDeserializer.java
index 6b36fdd02e..1069185bba 100644
--- a/modules/swagger-parser/src/main/java/io/swagger/parser/util/SwaggerDeserializer.java
+++ b/modules/swagger-parser/src/main/java/io/swagger/parser/util/SwaggerDeserializer.java
@@ -916,6 +916,16 @@ public Property property(ObjectNode node, String location, ParseResult result) {
                 }
             }
         }
+
+        // work-around for https://github.com/swagger-api/swagger-core/issues/1977
+        if(node.get("$ref") != null && node.get("$ref").isTextual()) {
+            // check if it's a relative ref
+            String refString = node.get("$ref").textValue();
+            if(refString.indexOf("/") == -1 && refString.indexOf(".") > 0) {
+                refString = "./" + refString;
+                node.put("$ref", refString);
+            }
+        }
         return Json.mapper().convertValue(node, Property.class);
     }
 
diff --git a/modules/swagger-parser/src/test/java/io/swagger/parser/FileReferenceTests.java b/modules/swagger-parser/src/test/java/io/swagger/parser/FileReferenceTests.java
new file mode 100644
index 0000000000..870679513a
--- /dev/null
+++ b/modules/swagger-parser/src/test/java/io/swagger/parser/FileReferenceTests.java
@@ -0,0 +1,27 @@
+package io.swagger.parser;
+
+import io.swagger.models.Swagger;
+import io.swagger.parser.util.SwaggerDeserializationResult;
+import org.testng.annotations.Test;
+
+import static org.testng.Assert.assertNotNull;
+import static org.testng.Assert.assertTrue;
+
+public class FileReferenceTests {
+    @Test
+    public void testIssue306() {
+        SwaggerDeserializationResult result = new SwaggerParser().readWithInfo("./src/test/resources/nested-file-references/issue-306.yaml", null, true);
+        assertNotNull(result.getSwagger());
+
+        Swagger swagger = result.getSwagger();
+
+        assertTrue(swagger.getDefinitions().size() == 3);
+        // resolved from `$ref: './book.yaml'`
+        assertNotNull(swagger.getDefinitions().get("Inventory"));
+        // resolved from `$ref: 'book.yaml'`
+        assertNotNull(swagger.getDefinitions().get("Orders"));
+
+        // copied from `./book.yaml`
+        assertNotNull(swagger.getDefinitions().get("book"));
+    }
+}
diff --git a/modules/swagger-parser/src/test/resources/nested-file-references/book.yaml b/modules/swagger-parser/src/test/resources/nested-file-references/book.yaml
new file mode 100644
index 0000000000..2e2236aee4
--- /dev/null
+++ b/modules/swagger-parser/src/test/resources/nested-file-references/book.yaml
@@ -0,0 +1,9 @@
+description: A book entity
+properties:
+  name:
+    type: string
+  title:
+    type: string
+  pages:
+    type: integer
+    format: int32
\ No newline at end of file
diff --git a/modules/swagger-parser/src/test/resources/nested-file-references/components/entities.yaml b/modules/swagger-parser/src/test/resources/nested-file-references/components/entities.yaml
new file mode 100644
index 0000000000..77b8b6f12f
--- /dev/null
+++ b/modules/swagger-parser/src/test/resources/nested-file-references/components/entities.yaml
@@ -0,0 +1,5 @@
+definitions:
+  Category:
+    properties:
+      name:
+        type: string
diff --git a/modules/swagger-parser/src/test/resources/nested-file-references/issue-306.yaml b/modules/swagger-parser/src/test/resources/nested-file-references/issue-306.yaml
new file mode 100644
index 0000000000..a263f2a13a
--- /dev/null
+++ b/modules/swagger-parser/src/test/resources/nested-file-references/issue-306.yaml
@@ -0,0 +1,18 @@
+swagger: '2.0'
+definitions:
+  Animal:
+    required:
+      - id
+    properties:
+      id:
+        type: string
+      categories:
+        $ref: './components/entities.yaml#/definitions/Category'
+  Inventory:
+    properties:
+      book:
+        $ref: './book.yaml'
+  Orders:
+    properties:
+      book:
+        $ref: 'book.yaml'
\ No newline at end of file