diff --git a/parser.c b/parser.c
index bfe96fd3..9e58379a 100644
--- a/parser.c
+++ b/parser.c
@@ -7365,10 +7365,9 @@ xmlParseReference(xmlParserCtxtPtr ctxt) {
     if (ent == NULL) {
         /*
          * Create a reference for undeclared entities.
-         * TODO: Should we really create a reference if entity
-         * substitution is enabled?
          */
-        if ((ctxt->sax != NULL) &&
+        if ((ctxt->replaceEntities == 0) &&
+            (ctxt->sax != NULL) &&
             (ctxt->disableSAX == 0) &&
             (ctxt->sax->reference != NULL)) {
             ctxt->sax->reference(ctxt->userData, name);
diff --git a/result/noent/undeclared-entity.xml b/result/noent/undeclared-entity.xml
index 1fd092f7..3db97bc1 100644
--- a/result/noent/undeclared-entity.xml
+++ b/result/noent/undeclared-entity.xml
@@ -3,5 +3,5 @@
 <!DOCTYPE doc SYSTEM "foo">
 <doc>
     <elem attr=""/>
-    <elem>&undeclared;</elem>
+    <elem/>
 </doc>
diff --git a/result/noent/undeclared-entity.xml.sax2 b/result/noent/undeclared-entity.xml.sax2
index 56f3f3d9..60eaaea2 100644
--- a/result/noent/undeclared-entity.xml.sax2
+++ b/result/noent/undeclared-entity.xml.sax2
@@ -16,7 +16,6 @@ SAX.characters(
 SAX.startElementNs(elem, NULL, NULL, 0, 0, 0)
 SAX.getEntity(undeclared)
 SAX.warning: Entity 'undeclared' not defined
-SAX.reference(undeclared)
 SAX.endElementNs(elem, NULL, NULL)
 SAX.characters(
 , 1)
diff --git a/result/undeclared-entity.xml.rde b/result/undeclared-entity.xml.rde
index 29ebf622..065f91be 100644
--- a/result/undeclared-entity.xml.rde
+++ b/result/undeclared-entity.xml.rde
@@ -7,7 +7,6 @@
 1 14 #text 0 1 
     
 1 1 elem 0 0
-2 5 undeclared 0 0
 1 15 elem 0 0
 1 14 #text 0 1