--- a/mercurial/hg.py
+++ b/mercurial/hg.py
@@ -54,6 +54,7 @@ repo_setup_hooks = []
 def repository(ui, path='', create=False):
     """return a repository object for the specified path"""
     repo = _lookup(path).instance(ui, path, create)
+    ui = getattr(repo, "ui", ui)
     for hook in repo_setup_hooks:
         hook(ui, repo)
     return repo

--- a/tests/test-extension
+++ b/tests/test-extension
@@ -7,9 +7,12 @@ from mercurial import commands
 
 def uisetup(ui):
     ui.write("uisetup called\\n")
+    ui.write("ui.parentui is%s None\\n" % (ui.parentui is not None
+                                           and "not" or ""))
 
 def reposetup(ui, repo):
     ui.write("reposetup called for %s\\n" % os.path.basename(repo.root))
+    ui.write("ui %s= repo.ui\\n" % (ui == repo.ui and "=" or "!"))
 
 def foo(ui, *args, **kwargs):
     ui.write("Foo\\n")

--- a/tests/test-extension.out
+++ b/tests/test-extension.out
@@ -1,9 +1,15 @@
 uisetup called
+ui.parentui is None
 reposetup called for a
+ui == repo.ui
 Foo
 uisetup called
+ui.parentui is None
 reposetup called for a
+ui == repo.ui
 reposetup called for b
+ui == repo.ui
 1 files updated, 0 files merged, 0 files removed, 0 files unresolved
 uisetup called
+ui.parentui is None
 Bar