diff --git a/mercurial/scmutil.py b/mercurial/scmutil.py
--- a/mercurial/scmutil.py
+++ b/mercurial/scmutil.py
@@ -563,10 +563,23 @@
     fullorigpath = repo.wjoin(origbackuppath, filepathfromroot)
 
     origbackupdir = repo.vfs.dirname(fullorigpath)
-    if not repo.vfs.exists(origbackupdir):
+    if not repo.vfs.isdir(origbackupdir):
         ui.note(_('creating directory: %s\n') % origbackupdir)
+
+        # Remove any files that conflict with the backup file's path
+        for f in util.finddirs(fullorigpath):
+            if repo.vfs.exists(f):
+                if repo.vfs.isfile(f):
+                    ui.note(_('removing conflicting file: %s\n') % f)
+                    repo.vfs.unlink(f)
+                break
+
         util.makedirs(origbackupdir)
 
+    if repo.vfs.isdir(fullorigpath):
+        ui.note(_('removing conflicting directory: %s\n') % fullorigpath)
+        repo.vfs.rmtree(fullorigpath, forcibly=True)
+
     return fullorigpath
 
 class _containsnode(object):
diff --git a/tests/test-origbackup-conflict.t b/tests/test-origbackup-conflict.t
new file mode 100644
--- /dev/null
+++ b/tests/test-origbackup-conflict.t
@@ -0,0 +1,80 @@
+Set up repo
+
+  $ cat << EOF >> $HGRCPATH
+  > [ui]
+  > origbackuppath=.hg/origbackups
+  > [merge]
+  > checkunknown=warn
+  > EOF
+  $ hg init repo
+  $ cd repo
+  $ echo base > base
+  $ hg add base
+  $ hg commit -m "base"
+
+Make a dir named b that contains a file
+
+  $ mkdir -p b
+  $ echo c1 > b/c
+  $ hg add b/c
+  $ hg commit -m "c1"
+  $ hg bookmark c1
+
+Peform an update that causes b/c to be backed up
+
+  $ hg up 0
+  0 files updated, 0 files merged, 1 files removed, 0 files unresolved
+  (leaving bookmark c1)
+  $ mkdir -p b
+  $ echo c2 > b/c
+  $ hg up --verbose c1
+  resolving manifests
+  b/c: replacing untracked file
+  getting b/c
+  creating directory: $TESTTMP/repo/.hg/origbackups/b
+  1 files updated, 0 files merged, 0 files removed, 0 files unresolved
+  (activating bookmark c1)
+  $ test -f .hg/origbackups/b/c
+
+Make a file named b
+
+  $ hg up 0
+  0 files updated, 0 files merged, 1 files removed, 0 files unresolved
+  (leaving bookmark c1)
+  $ echo b1 > b
+  $ hg add b
+  $ hg commit -m b1
+  created new head
+  $ hg bookmark b1
+
+Perform an update that causes b to be backed up - it should replace the backup b dir
+
+  $ hg up 0
+  0 files updated, 0 files merged, 1 files removed, 0 files unresolved
+  (leaving bookmark b1)
+  $ echo b2 > b
+  $ hg up --verbose b1
+  resolving manifests
+  b: replacing untracked file
+  getting b
+  removing conflicting directory: $TESTTMP/repo/.hg/origbackups/b
+  1 files updated, 0 files merged, 0 files removed, 0 files unresolved
+  (activating bookmark b1)
+  $ test -f .hg/origbackups/b
+
+Perform an update the causes b/c to be backed up again - it should replace the backup b file
+
+  $ hg up 0
+  0 files updated, 0 files merged, 1 files removed, 0 files unresolved
+  (leaving bookmark b1)
+  $ mkdir b
+  $ echo c3 > b/c
+  $ hg up --verbose c1
+  resolving manifests
+  b/c: replacing untracked file
+  getting b/c
+  creating directory: $TESTTMP/repo/.hg/origbackups/b
+  removing conflicting file: $TESTTMP/repo/.hg/origbackups/b
+  1 files updated, 0 files merged, 0 files removed, 0 files unresolved
+  (activating bookmark c1)
+  $ test -d .hg/origbackups/b