diff --git a/packages/kit/src/module/install.ts b/packages/kit/src/module/install.ts
index a55f391c13..cd2ebea068 100644
--- a/packages/kit/src/module/install.ts
+++ b/packages/kit/src/module/install.ts
@@ -1,4 +1,6 @@
+import { lstatSync } from 'node:fs'
 import type { Nuxt, NuxtModule } from '@nuxt/schema'
+import { dirname, isAbsolute } from 'pathe'
 import { isNuxt2 } from '../compatibility'
 import { useNuxt } from '../context'
 import { requireModule, resolveModule } from '../internal/cjs'
@@ -22,7 +24,7 @@ export async function installModule (moduleToInstall: string | NuxtModule, _inli
   }
 
   if (typeof moduleToInstall === 'string') {
-    nuxt.options.build.transpile.push(moduleToInstall)
+    nuxt.options.build.transpile.push(normalizeModuleTranspilePath(moduleToInstall))
   }
 
   nuxt.options._installedModules = nuxt.options._installedModules || []
@@ -35,6 +37,17 @@ export async function installModule (moduleToInstall: string | NuxtModule, _inli
 
 // --- Internal ---
 
+export const normalizeModuleTranspilePath = (p: string) => {
+  try {
+    // we need to target directories instead of module file paths themselves
+    // /home/user/project/node_modules/module/index.js -> /home/user/project/node_modules/module
+    p = isAbsolute(p) && lstatSync(p).isFile() ? dirname(p) : p
+  } catch (e) {
+    // maybe the path is absolute but does not exist, allow this to bubble up
+  }
+  return p.split('node_modules/').pop() as string
+}
+
 async function normalizeModule (nuxtModule: string | NuxtModule, inlineOptions?: any) {
   const nuxt = useNuxt()
 
diff --git a/packages/nuxt/src/core/modules.ts b/packages/nuxt/src/core/modules.ts
index 6df928fc7d..928e58edc6 100644
--- a/packages/nuxt/src/core/modules.ts
+++ b/packages/nuxt/src/core/modules.ts
@@ -1,4 +1,4 @@
-import { useNuxt } from '@nuxt/kit'
+import { normalizeModuleTranspilePath, useNuxt } from '@nuxt/kit'
 
 export interface AddModuleTranspilesOptions {
   additionalModules?: string[]
@@ -14,7 +14,7 @@ export const addModuleTranspiles = (opts: AddModuleTranspilesOptions = {}) => {
   ]
     .map(m => typeof m === 'string' ? m : Array.isArray(m) ? m[0] : m.src)
     .filter(m => typeof m === 'string')
-    .map(m => m.split('node_modules/').pop())
+    .map(normalizeModuleTranspilePath)
 
   // Try to sanitize modules to better match imports
   nuxt.options.build.transpile =