diff --git a/docs/manifest-format.md b/docs/manifest-format.md
index 06d370a3e..d1a11cc99 100644
--- a/docs/manifest-format.md
+++ b/docs/manifest-format.md
@@ -566,6 +566,7 @@ These restrictions are not enforced for [Local Manifests].
 Attribute `groups`: List of additional groups to which all projects
 in the included manifest belong. This appends and recurses, meaning
 all projects in included manifests carry all parent include groups.
+This also applies to all extend-project elements in the included manifests.
 Same syntax as the corresponding element of `project`.
 
 Attribute `revision`: Name of a Git branch (e.g. `main` or `refs/heads/main`)
diff --git a/man/repo-manifest.1 b/man/repo-manifest.1
index 4658b1e92..df3943ceb 100644
--- a/man/repo-manifest.1
+++ b/man/repo-manifest.1
@@ -627,7 +627,8 @@ restrictions are not enforced for [Local Manifests].
 .PP
 Attribute `groups`: List of additional groups to which all projects in the
 included manifest belong. This appends and recurses, meaning all projects in
-included manifests carry all parent include groups. Same syntax as the
+included manifests carry all parent include groups. This also applies to all
+extend\-project elements in the included manifests. Same syntax as the
 corresponding element of `project`.
 .PP
 Attribute `revision`: Name of a Git branch (e.g. `main` or `refs/heads/main`)
diff --git a/manifest_xml.py b/manifest_xml.py
index 5e0b53b99..33a552827 100644
--- a/manifest_xml.py
+++ b/manifest_xml.py
@@ -1335,7 +1335,10 @@ https://gerrit.googlesource.com/git-repo/+/HEAD/docs/manifest-format.md
                         f"failed parsing included manifest {name}: {e}"
                     )
             else:
-                if parent_groups and node.nodeName == "project":
+                if parent_groups and node.nodeName in (
+                    "project",
+                    "extend-project",
+                ):
                     nodeGroups = parent_groups
                     if node.hasAttribute("groups"):
                         nodeGroups = (
diff --git a/tests/test_manifest_xml.py b/tests/test_manifest_xml.py
index c1fed2bf9..d4bf76a91 100644
--- a/tests/test_manifest_xml.py
+++ b/tests/test_manifest_xml.py
@@ -488,6 +488,41 @@ class IncludeElementTests(ManifestParseTestCase):
                 # Check level2 proj group not removed.
                 self.assertIn("l2g1", proj.groups)
 
+    def test_group_levels_with_extend_project(self):
+        root_m = self.manifest_dir / "root.xml"
+        root_m.write_text(
+            """
+<manifest>
+  <remote name="test-remote" fetch="http://localhost" />
+  <default remote="test-remote" revision="refs/heads/main" />
+  <include name="man1.xml" groups="top-group1" />
+  <include name="man2.xml" groups="top-group2" />
+</manifest>
+"""
+        )
+        (self.manifest_dir / "man1.xml").write_text(
+            """
+<manifest>
+  <project name="project1" path="project1" />
+</manifest>
+"""
+        )
+        (self.manifest_dir / "man2.xml").write_text(
+            """
+<manifest>
+  <extend-project name="project1" groups="eg1" />
+</manifest>
+"""
+        )
+        include_m = manifest_xml.XmlManifest(str(self.repodir), str(root_m))
+        proj = include_m.projects[0]
+        # Check project has inherited group via project element.
+        self.assertIn("top-group1", proj.groups)
+        # Check project has inherited group via extend-project element.
+        self.assertIn("top-group2", proj.groups)
+        # Check project has set group via extend-project element.
+        self.assertIn("eg1", proj.groups)
+
     def test_allow_bad_name_from_user(self):
         """Check handling of bad name attribute from the user's input."""