diff --git a/extensions/markdown-language-features/src/features/pathCompletions.ts b/extensions/markdown-language-features/src/features/pathCompletions.ts
index 32b3142e10a..c8e3a4f4ec9 100644
--- a/extensions/markdown-language-features/src/features/pathCompletions.ts
+++ b/extensions/markdown-language-features/src/features/pathCompletions.ts
@@ -63,6 +63,14 @@ interface CompletionContext {
 	readonly anchorInfo?: AnchorContext;
 }
 
+function tryDecodeUriComponent(str: string): string {
+	try {
+		return decodeURIComponent(str);
+	} catch {
+		return str;
+	}
+}
+
 export class PathCompletionProvider implements vscode.CompletionItemProvider {
 
 	public static register(selector: vscode.DocumentSelector, engine: MarkdownEngine): vscode.Disposable {
@@ -157,7 +165,7 @@ export class PathCompletionProvider implements vscode.CompletionItemProvider {
 			const suffix = lineSuffixText.match(/^[^\)\s]*/);
 			return {
 				kind: CompletionContextKind.Link,
-				linkPrefix: prefix,
+				linkPrefix: tryDecodeUriComponent(prefix),
 				linkTextStartPosition: position.translate({ characterDelta: -prefix.length }),
 				linkSuffix: suffix ? suffix[0] : '',
 				anchorInfo: this.getAnchorContext(prefix),
@@ -174,7 +182,7 @@ export class PathCompletionProvider implements vscode.CompletionItemProvider {
 			const suffix = lineSuffixText.match(/^[^\s]*/);
 			return {
 				kind: CompletionContextKind.LinkDefinition,
-				linkPrefix: prefix,
+				linkPrefix: tryDecodeUriComponent(prefix),
 				linkTextStartPosition: position.translate({ characterDelta: -prefix.length }),
 				linkSuffix: suffix ? suffix[0] : '',
 				anchorInfo: this.getAnchorContext(prefix),
diff --git a/extensions/markdown-language-features/src/test/pathCompletion.test.ts b/extensions/markdown-language-features/src/test/pathCompletion.test.ts
index e12cf575b92..1fba12d7b64 100644
--- a/extensions/markdown-language-features/src/test/pathCompletion.test.ts
+++ b/extensions/markdown-language-features/src/test/pathCompletion.test.ts
@@ -151,4 +151,20 @@ suite('Markdown path completion provider', () => {
 
 		assert.ok(completions.some(x => x.insertText === 'file%20with%20space.md'), 'Has encoded path completion');
 	});
+
+	test('Should complete paths for path with encoded spaces', async () => {
+		const completions = await getCompletionsAtCursor(workspaceFile('new.md'), joinLines(
+			`[](./sub%20with%20space/${CURSOR})`
+		));
+
+		assert.ok(completions.some(x => x.insertText === 'file.md'), 'Has file from space');
+	});
+
+	test('Should complete definition path for path with encoded spaces', async () => {
+		const completions = await getCompletionsAtCursor(workspaceFile('new.md'), joinLines(
+			`[def]: ./sub%20with%20space/${CURSOR}`
+		));
+
+		assert.ok(completions.some(x => x.insertText === 'file.md'), 'Has file from space');
+	});
 });
diff --git a/extensions/markdown-language-features/test-workspace/sub with space/file.md b/extensions/markdown-language-features/test-workspace/sub with space/file.md
new file mode 100644
index 00000000000..6f83f34efff
--- /dev/null
+++ b/extensions/markdown-language-features/test-workspace/sub with space/file.md	
@@ -0,0 +1 @@
+# header