diff --git a/lib/ansible/runner/__init__.py b/lib/ansible/runner/__init__.py
index f9e38a59773..6a9c299160e 100644
--- a/lib/ansible/runner/__init__.py
+++ b/lib/ansible/runner/__init__.py
@@ -30,7 +30,6 @@ import base64
 import sys
 import shlex
 import pipes
-import re
 import jinja2
 
 import ansible.constants as C
@@ -576,8 +575,8 @@ class Runner(object):
 
         # render module_args and complex_args templates
         try:
-            module_args = template.template(self.basedir, module_args, inject)
-            complex_args = template.template(self.basedir, complex_args, inject)
+            module_args = template.template(self.basedir, module_args, inject, fail_on_undefined=self.error_on_undefined_vars)
+            complex_args = template.template(self.basedir, complex_args, inject, fail_on_undefined=self.error_on_undefined_vars)
         except jinja2.exceptions.UndefinedError, e:
             raise errors.AnsibleUndefinedVariable("Undefined variables: %s" % str(e))
 
@@ -694,16 +693,8 @@ class Runner(object):
 
     # *****************************************************
 
-    def _contains_undefined_vars(self, module_args):
-        ''' return true if there are undefined variables '''
-        return '{{' in module_args
-
     def _copy_module(self, conn, tmp, module_name, module_args, inject, complex_args=None):
         ''' transfer a module over SFTP, does not run it '''
-        if self.error_on_undefined_vars and self._contains_undefined_vars(module_args):
-            vars = re.findall(r'{{(.*?)}}', module_args)
-            raise errors.AnsibleUndefinedVariable("Undefined variables: %s" %
-                ', '.join(vars))
 
         # FIXME if complex args is none, set to {}
 
diff --git a/lib/ansible/utils/template.py b/lib/ansible/utils/template.py
index 6abc9416acd..e3b6357136f 100644
--- a/lib/ansible/utils/template.py
+++ b/lib/ansible/utils/template.py
@@ -295,7 +295,7 @@ def legacy_varReplace(basedir, raw, vars, lookup_fatal=True, depth=0, expand_lis
 
 # TODO: varname is misnamed here
 
-def template(basedir, varname, vars, lookup_fatal=True, depth=0, expand_lists=True, convert_bare=False):
+def template(basedir, varname, vars, lookup_fatal=True, depth=0, expand_lists=True, convert_bare=False, fail_on_undefined=False):
     ''' templates a data structure by traversing it and substituting for other data structures '''
 
     if convert_bare and isinstance(varname, basestring):
@@ -305,7 +305,7 @@ def template(basedir, varname, vars, lookup_fatal=True, depth=0, expand_lists=Tr
 
     if isinstance(varname, basestring):
         if '{{' in varname or '{%' in varname:
-            varname = template_from_string(basedir, varname, vars)
+            varname = template_from_string(basedir, varname, vars, fail_on_undefined)
         if not '$' in varname:
             return varname
 
@@ -461,7 +461,7 @@ def template_from_file(basedir, path, vars):
         res = res + '\n'
     return template(basedir, res, vars)
 
-def template_from_string(basedir, data, vars):
+def template_from_string(basedir, data, vars, fail_on_undefined=False):
     ''' run a string through the (Jinja2) templating engine '''
 
     try:
@@ -496,7 +496,9 @@ def template_from_string(basedir, data, vars):
         res = jinja2.utils.concat(t.root_render_func(t.new_context(_jinja2_vars(basedir, vars, t.globals), shared=True)))
         return res
     except jinja2.exceptions.UndefinedError:
-        raise
+        if fail_on_undefined:
+            raise
+        else:
         # this shouldn't happen due to undeclared check above
-        # return data
+            return data