diff --git a/packages/ts/file-router/src/runtime/RouterConfigurationBuilder.ts b/packages/ts/file-router/src/runtime/RouterConfigurationBuilder.ts
index 693b073da5..a2f4f86c96 100644
--- a/packages/ts/file-router/src/runtime/RouterConfigurationBuilder.ts
+++ b/packages/ts/file-router/src/runtime/RouterConfigurationBuilder.ts
@@ -109,6 +109,8 @@ export class RouterConfigurationBuilder {
    * each fallback component.
    */
   withFallback(component: ComponentType, config?: ViewConfig): this {
+    this.withLayout(component);
+
     // Fallback adds two routes, so that the index (empty path) has a fallback too
     const fallbackRoutes: readonly RouteObject[] = [
       { path: '*', element: createElement(component), handle: config },
@@ -150,16 +152,7 @@ export class RouterConfigurationBuilder {
    */
   withLayout(layoutComponent: ComponentType): this {
     function applyLayouts(routes: readonly RouteObject[]): readonly RouteObject[] {
-      const nestedRoutes = routes.map((route) => {
-        if (route.children === undefined) {
-          return route;
-        }
-
-        return {
-          ...route,
-          children: applyLayouts(route.children),
-        } as RouteObject;
-      });
+      const nestedRoutes = routes.map((route) => route);
       return [
         {
           element: createElement(layoutComponent),
@@ -168,15 +161,20 @@ export class RouterConfigurationBuilder {
       ];
     }
 
+    function checkFlowLayout(route: RouteObject): boolean {
+      // eslint-disable-next-line @typescript-eslint/no-unsafe-member-access
+      let flowLayout = typeof route.handle === 'object' && 'flowLayout' in route.handle && route.handle.flowLayout;
+      if (!flowLayout && route.children) {
+        flowLayout = route.children.filter((child) => checkFlowLayout(child)).length > 0;
+      }
+      return flowLayout;
+    }
+
     this.#modifiers.push((routes: readonly RouteObject[] | undefined) => {
       if (!routes) {
         return routes;
       }
-      const withLayout = routes.filter((route) => {
-        // eslint-disable-next-line @typescript-eslint/no-unsafe-member-access
-        const layout = typeof route.handle === 'object' && 'flowLayout' in route.handle && route.handle.flowLayout;
-        return layout;
-      });
+      const withLayout = routes.filter((route) => checkFlowLayout(route));
       const allRoutes = routes.filter((route) => !withLayout.includes(route));
       const catchAll = [routes.find((route) => route.path === '*')].filter((route) => route !== undefined);
       withLayout.push(...catchAll); // Add * fallback to all child routes
diff --git a/packages/ts/file-router/test/runtime/RouterConfigurationBuilder.spec.tsx b/packages/ts/file-router/test/runtime/RouterConfigurationBuilder.spec.tsx
index edb3480c74..e37771ce23 100644
--- a/packages/ts/file-router/test/runtime/RouterConfigurationBuilder.spec.tsx
+++ b/packages/ts/file-router/test/runtime/RouterConfigurationBuilder.spec.tsx
@@ -83,19 +83,6 @@ describe('RouterBuilder', () => {
   });
 
   it('should add layout routes under layout component', () => {
-    const serverWildcard = {
-      path: '*',
-      element: <Server />,
-      handle: { title: 'Server' },
-    };
-    const serverIndex = {
-      index: true,
-      element: <Server />,
-      handle: { title: 'Server' },
-    };
-
-    const serverRoutes = [serverWildcard, serverIndex];
-
     const { routes } = builder
       .withReactRoutes([
         {
@@ -131,12 +118,88 @@ describe('RouterBuilder', () => {
           {
             children: [
               {
-                children: [
-                  {
-                    path: '/child',
-                  },
-                ],
-                element: createElement(Server),
+                path: '/child',
+              },
+            ],
+            path: '/test',
+            handle: {
+              flowLayout: true,
+            },
+          },
+        ],
+        element: createElement(Server),
+      },
+      {
+        children: [
+          {
+            path: '/test',
+            element: <div>Test</div>,
+          },
+        ],
+        path: '',
+      },
+    ]);
+  });
+
+  it('should add layout routes for nested folder layout component', () => {
+    const { routes } = builder
+      .withReactRoutes([
+        {
+          path: 'nest',
+          children: [
+            {
+              path: '',
+              handle: {
+                flowLayout: true,
+              },
+            },
+            {
+              path: '/nested',
+              handle: {
+                flowLayout: true,
+              },
+            },
+          ],
+        },
+        {
+          path: '/test',
+          handle: {
+            flowLayout: true,
+          },
+          children: [
+            {
+              path: '/child',
+            },
+          ],
+        },
+      ])
+      .withLayout(Server)
+      .build();
+
+    expect(routes).to.be.like([
+      {
+        children: [
+          {
+            children: [
+              {
+                path: '',
+                handle: {
+                  flowLayout: true,
+                },
+              },
+              {
+                path: '/nested',
+                handle: {
+                  flowLayout: true,
+                },
+              },
+            ],
+            path: 'nest',
+          },
+          {
+            children: [
+              {
+                path: '/child',
               },
             ],
             path: '/test',