diff --git a/beetsplug/smartplaylist.py b/beetsplug/smartplaylist.py
index 9df2cca648..6124c7b408 100644
--- a/beetsplug/smartplaylist.py
+++ b/beetsplug/smartplaylist.py
@@ -259,7 +259,7 @@ def update_playlists(self, lib, pretend=False):
         tpl = self.config["uri_format"].get()
         prefix = bytestring_path(self.config["prefix"].as_str())
         relative_to = self.config["relative_to"].get()
-        if relative_to:
+        if relative_to != "m3u":
             relative_to = normpath(relative_to)
 
         # Maps playlist filenames to lists of track filenames.
@@ -289,6 +289,8 @@ def update_playlists(self, lib, pretend=False):
                 item_uri = item.path
                 if tpl:
                     item_uri = tpl.replace("$id", str(item.id)).encode("utf-8")
+                if relative_to == "m3u":
+                    item_uri = "m3u"
                 else:
                     if relative_to:
                         item_uri = os.path.relpath(item_uri, relative_to)
@@ -325,6 +327,17 @@ def update_playlists(self, lib, pretend=False):
                         f.write(b"#EXTM3U\n")
                     for entry in m3us[m3u]:
                         item = entry.item
+                        if entry.uri == "m3u":
+                            entry.uri = os.path.relpath(
+                                item.path, os.path.dirname(m3u_path)
+                            )
+                            if self.config["forward_slash"].get():
+                                entry.uri = path_as_posix(entry.uri)
+                            if self.config["urlencode"]:
+                                entry.uri = bytestring_path(
+                                    pathname2url(entry.uri)
+                                )
+                            entry.uri = prefix + entry.uri
                         comment = ""
                         if extm3u:
                             attr = [(k, entry.item[k]) for k in keys]
diff --git a/docs/changelog.rst b/docs/changelog.rst
index 7a94fa3fc3..e063586a3d 100644
--- a/docs/changelog.rst
+++ b/docs/changelog.rst
@@ -13,6 +13,7 @@ New features:
   album queries involving `path` field have been sped up, like `beet list -a
   path:/path/`.
 
+* Ability to use relative_to as "m3u" to set playlist files as relative to where each playlist is at, including subdirectories.
 Bug fixes:
 
 * Improved naming of temporary files by separating the random part with the file extension.