diff --git a/lib/ansible/inventory/vars_plugins/group_vars.py b/lib/ansible/inventory/vars_plugins/group_vars.py
index 65e0d8b710a..6d320900112 100644
--- a/lib/ansible/inventory/vars_plugins/group_vars.py
+++ b/lib/ansible/inventory/vars_plugins/group_vars.py
@@ -51,12 +51,7 @@ class VarsModule(object):
                     data = utils.parse_yaml_from_file(path)
                     if type(data) != dict:
                         raise errors.AnsibleError("%s must be stored as a dictionary/hash" % path)
-                    if C.DEFAULT_HASH_BEHAVIOUR == "merge":
-                        # let data content override results if needed
-                        results = utils.merge_hash(results, data)
-                    else:
-                        results.update(data)
-                    break
+                    results = utils.combine_vars(results, data);
 
         # load vars in inventory_dir/hosts_vars/name_of_host
         p = os.path.join(basedir, "host_vars/%s" % host.name)
@@ -66,11 +61,7 @@ class VarsModule(object):
                 data = utils.parse_yaml_from_file(path)
                 if type(data) != dict:
                     raise errors.AnsibleError("%s must be stored as a dictionary/hash" % path)
-                if C.DEFAULT_HASH_BEHAVIOUR == "merge":
-                    # let data content override results if needed
-                    results = utils.merge_hash(results, data)
-                else:
-                    results.update(data)
-                break
+                results = utils.combine_vars(results, data);
+
         return results
 
diff --git a/lib/ansible/playbook/play.py b/lib/ansible/playbook/play.py
index bac18e00622..82e87eced17 100644
--- a/lib/ansible/playbook/play.py
+++ b/lib/ansible/playbook/play.py
@@ -438,8 +438,9 @@ class Play(object):
                     if host is not None and self._has_vars_in(filename2) and not self._has_vars_in(filename3):
                         # running a host specific pass and has host specific variables
                         # load into setup cache
-                        self.playbook.SETUP_CACHE[host].update(new_vars)
+                        self.playbook.SETUP_CACHE[host] = utils.combine_vars(
+                            self.playbook.SETUP_CACHE[host], new_vars)
                         self.playbook.callbacks.on_import_for_host(host, filename4)
                     elif host is None:
                         # running a non-host specific pass and we can update the global vars instead
-                        self.vars.update(new_vars)
+                        self.vars = utils.combine_vars(self.vars, new_vars)
diff --git a/lib/ansible/runner/__init__.py b/lib/ansible/runner/__init__.py
index c6dbd998af9..6c5737f5ecc 100644
--- a/lib/ansible/runner/__init__.py
+++ b/lib/ansible/runner/__init__.py
@@ -182,7 +182,6 @@ class Runner(object):
 
         # ensure we are using unique tmp paths
         random.seed()
- 
     # *****************************************************
 
     def _complex_args_hack(self, complex_args, module_args):
@@ -350,11 +349,10 @@ class Runner(object):
             port = self.remote_port
 
         inject = {}
-        inject.update(host_variables)
-        inject.update(self.module_vars)
-        inject.update(self.setup_cache[host])
-
-        inject['hostvars']    = HostVars(self.setup_cache, self.inventory)
+        inject = utils.combine_vars(inject, host_variables)
+        inject = utils.combine_vars(inject, self.module_vars)
+        inject = utils.combine_vars(inject, self.setup_cache[host])
+        inject['hostvars'] = HostVars(self.setup_cache, self.inventory)
         inject['group_names'] = host_variables.get('group_names', [])
         inject['groups']      = self.inventory.groups_list()
         inject['vars']        = self.module_vars
@@ -522,7 +520,7 @@ class Runner(object):
         # all modules get a tempdir, action plugins get one unless they have NEEDS_TMPPATH set to False
         if getattr(handler, 'NEEDS_TMPPATH', True):
             tmp = self._make_tmp_path(conn)
-        
+
         result = handler.run(conn, tmp, module_name, module_args, inject, complex_args)
 
         conn.close()
@@ -655,8 +653,8 @@ class Runner(object):
             module_data = f.read()
             if module_common.REPLACER in module_data:
                 is_new_style=True
- 
-            complex_args_json = utils.jsonify(complex_args) 
+
+            complex_args_json = utils.jsonify(complex_args)
             encoded_args = "\"\"\"%s\"\"\"" % module_args.replace("\"","\\\"")
             encoded_lang = "\"\"\"%s\"\"\"" % C.DEFAULT_MODULE_LANG
             encoded_complex = "\"\"\"%s\"\"\"" % complex_args_json.replace("\\", "\\\\")
@@ -665,7 +663,7 @@ class Runner(object):
             module_data = module_data.replace(module_common.REPLACER_ARGS, encoded_args)
             module_data = module_data.replace(module_common.REPLACER_LANG, encoded_lang)
             module_data = module_data.replace(module_common.REPLACER_COMPLEX, encoded_complex)
-            
+
             if is_new_style:
                 facility = C.DEFAULT_SYSLOG_FACILITY
                 if 'ansible_syslog_facility' in inject:
@@ -767,7 +765,7 @@ class Runner(object):
         # run once per hostgroup, rather than pausing once per each
         # host.
         p = utils.plugins.action_loader.get(self.module_name, self)
-        
+
         if p and getattr(p, 'BYPASS_HOST_LOOP', None):
 
             # Expose the current hostgroup to the bypassing plugins
diff --git a/lib/ansible/utils/__init__.py b/lib/ansible/utils/__init__.py
index f3e164c0c67..78eb9b318cb 100644
--- a/lib/ansible/utils/__init__.py
+++ b/lib/ansible/utils/__init__.py
@@ -318,7 +318,7 @@ def merge_hash(a, b):
     for k, v in b.iteritems():
         if k in a and isinstance(a[k], dict):
             # if this key is a hash and exists in a
-            # we recursively call ourselves with 
+            # we recursively call ourselves with
             # the key value of b
             a[k] = merge_hash(a[k], v)
         else:
@@ -743,9 +743,10 @@ def listify_lookup_plugin_terms(terms, basedir, inject):
 
     return terms
 
-
-
-
-   
+def combine_vars(a, b):
+    if C.DEFAULT_HASH_BEHAVIOUR == "merge":
+        return merge_hash(a, b)
+    else:
+        return dict(a.items() + b.items())
 
 
diff --git a/test/TestPlayBook.py b/test/TestPlayBook.py
index 0f611349927..af233ff103e 100644
--- a/test/TestPlayBook.py
+++ b/test/TestPlayBook.py
@@ -10,6 +10,7 @@ import ansible.utils as utils
 import ansible.callbacks as ans_callbacks
 import os
 import shutil
+import ansible.constants as C
 
 EVENTS = []
 
@@ -93,6 +94,8 @@ class TestPlaybook(unittest.TestCase):
            os.unlink('/tmp/ansible_test_data_copy.out')
        if os.path.exists('/tmp/ansible_test_data_template.out'):
            os.unlink('/tmp/ansible_test_data_template.out')
+       if os.path.exists('/tmp/ansible_test_messages.out'):
+           os.unlink('/tmp/ansible_test_messages.out')
 
    def _prepare_stage_dir(self):
        stage_path = os.path.join(self.test_dir, 'test_data')
@@ -285,3 +288,70 @@ class TestPlaybook(unittest.TestCase):
        print utils.jsonify(expected, format=True)
 
        assert utils.jsonify(expected, format=True) == utils.jsonify(actual,format=True)
+
+   def test_playbook_hash_replace(self):
+      # save default hash behavior so we can restore it in the end of the test
+      saved_hash_behavior = C.DEFAULT_HASH_BEHAVIOUR
+      C.DEFAULT_HASH_BEHAVIOUR = "replace"
+
+      test_callbacks = TestCallbacks()
+      playbook = ansible.playbook.PlayBook(
+          playbook=os.path.join(self.test_dir, 'test_hash_behavior', 'playbook.yml'),
+          host_list='test/ansible_hosts',
+          stats=ans_callbacks.AggregateStats(),
+          callbacks=test_callbacks,
+          runner_callbacks=test_callbacks
+      )
+      playbook.run()
+
+      with open('/tmp/ansible_test_messages.out') as f:
+        actual = [l.strip() for l in f.readlines()]
+
+      print "**ACTUAL**"
+      print actual
+
+      expected = [
+        "goodbye: Goodbye World!"
+      ]
+
+      print "**EXPECTED**"
+      print expected
+
+      assert actual == expected
+
+      # restore default hash behavior
+      C.DEFAULT_HASH_BEHAVIOUR = saved_hash_behavior
+
+   def test_playbook_hash_merge(self):
+      # save default hash behavior so we can restore it in the end of the test
+      saved_hash_behavior = C.DEFAULT_HASH_BEHAVIOUR
+      C.DEFAULT_HASH_BEHAVIOUR = "merge"
+
+      test_callbacks = TestCallbacks()
+      playbook = ansible.playbook.PlayBook(
+          playbook=os.path.join(self.test_dir, 'test_hash_behavior', 'playbook.yml'),
+          host_list='test/ansible_hosts',
+          stats=ans_callbacks.AggregateStats(),
+          callbacks=test_callbacks,
+          runner_callbacks=test_callbacks
+      )
+      playbook.run()
+
+      with open('/tmp/ansible_test_messages.out') as f:
+        actual = [l.strip() for l in f.readlines()]
+
+      print "**ACTUAL**"
+      print actual
+
+      expected = [
+        "hello: Hello World!",
+        "goodbye: Goodbye World!"
+      ]
+
+      print "**EXPECTED**"
+      print expected
+
+      assert actual == expected
+
+      # restore default hash behavior
+      C.DEFAULT_HASH_BEHAVIOUR = saved_hash_behavior
diff --git a/test/test_hash_behavior/goodbye.yml b/test/test_hash_behavior/goodbye.yml
new file mode 100644
index 00000000000..d04fd368e82
--- /dev/null
+++ b/test/test_hash_behavior/goodbye.yml
@@ -0,0 +1,3 @@
+---
+messages:
+  goodbye: "Goodbye World!"
diff --git a/test/test_hash_behavior/hello.yml b/test/test_hash_behavior/hello.yml
new file mode 100644
index 00000000000..a50c0883530
--- /dev/null
+++ b/test/test_hash_behavior/hello.yml
@@ -0,0 +1,3 @@
+---
+messages:
+  hello: "Hello World!"
diff --git a/test/test_hash_behavior/message.j2 b/test/test_hash_behavior/message.j2
new file mode 100644
index 00000000000..c2da7b9e715
--- /dev/null
+++ b/test/test_hash_behavior/message.j2
@@ -0,0 +1,3 @@
+{% for k, v in messages.iteritems() %}
+{{ k }}: {{ v }}
+{% endfor %}
diff --git a/test/test_hash_behavior/playbook.yml b/test/test_hash_behavior/playbook.yml
new file mode 100644
index 00000000000..29c7736e970
--- /dev/null
+++ b/test/test_hash_behavior/playbook.yml
@@ -0,0 +1,11 @@
+---
+- hosts: all
+  connection: local
+
+  vars_files:
+    - hello.yml
+    - goodbye.yml
+
+  tasks:
+    - name: generate messages
+      action: template src=message.j2 dest=/tmp/ansible_test_messages.out