diff --git a/org.eclipse.jgit.test/tst/org/eclipse/jgit/storage/file/FileBasedConfigTest.java b/org.eclipse.jgit.test/tst/org/eclipse/jgit/storage/file/FileBasedConfigTest.java
new file mode 100644
index 000000000..075852afd
--- /dev/null
+++ b/org.eclipse.jgit.test/tst/org/eclipse/jgit/storage/file/FileBasedConfigTest.java
@@ -0,0 +1,162 @@
+/*
+ * Copyright (C) 2012, Marc Strapetz
+ * and other copyright owners as documented in the project's IP log.
+ *
+ * This program and the accompanying materials are made available
+ * under the terms of the Eclipse Distribution License v1.0 which
+ * accompanies this distribution, is reproduced below, and is
+ * available at http://www.eclipse.org/org/documents/edl-v10.php
+ *
+ * All rights reserved.
+ *
+ * Redistribution and use in source and binary forms, with or
+ * without modification, are permitted provided that the following
+ * conditions are met:
+ *
+ * - Redistributions of source code must retain the above copyright
+ *   notice, this list of conditions and the following disclaimer.
+ *
+ * - Redistributions in binary form must reproduce the above
+ *   copyright notice, this list of conditions and the following
+ *   disclaimer in the documentation and/or other materials provided
+ *   with the distribution.
+ *
+ * - Neither the name of the Eclipse Foundation, Inc. nor the
+ *   names of its contributors may be used to endorse or promote
+ *   products derived from this software without specific prior
+ *   written permission.
+ *
+ * THIS SOFTWARE IS PROVIDED BY THE COPYRIGHT HOLDERS AND
+ * CONTRIBUTORS "AS IS" AND ANY EXPRESS OR IMPLIED WARRANTIES,
+ * INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES
+ * OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
+ * ARE DISCLAIMED. IN NO EVENT SHALL THE COPYRIGHT OWNER OR
+ * CONTRIBUTORS BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL,
+ * SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT
+ * NOT LIMITED TO, PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES;
+ * LOSS OF USE, DATA, OR PROFITS; OR BUSINESS INTERRUPTION) HOWEVER
+ * CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER IN CONTRACT,
+ * STRICT LIABILITY, OR TORT (INCLUDING NEGLIGENCE OR OTHERWISE)
+ * ARISING IN ANY WAY OUT OF THE USE OF THIS SOFTWARE, EVEN IF
+ * ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
+ */
+package org.eclipse.jgit.storage.file;
+
+import static org.junit.Assert.*;
+
+import java.io.ByteArrayOutputStream;
+import java.io.File;
+import java.io.FileOutputStream;
+import java.io.IOException;
+
+import org.eclipse.jgit.errors.ConfigInvalidException;
+import org.eclipse.jgit.util.FS;
+import org.eclipse.jgit.util.FileUtils;
+import org.eclipse.jgit.util.IO;
+import org.junit.After;
+import org.junit.Before;
+import org.junit.Test;
+
+public class FileBasedConfigTest {
+
+	private static final String USER = "user";
+
+	private static final String NAME = "name";
+
+	private static final String ALICE = "Alice";
+
+	private static final String BOB = "Bob";
+
+	private static final String CONTENT1 = "[" + USER + "]\n\t" + NAME + " = "
+			+ ALICE + "\n";
+
+	private static final String CONTENT2 = "[" + USER + "]\n\t" + NAME + " = "
+			+ BOB + "\n";
+
+	private final File trash = new File(new File("target"), "trash");
+
+	@After
+	public void tearDown() throws Exception {
+		FileUtils.delete(trash, FileUtils.RECURSIVE | FileUtils.SKIP_MISSING);
+	}
+
+	@Test
+	public void testSystemEncoding() throws IOException, ConfigInvalidException {
+		final File file = createFile(CONTENT1.getBytes());
+		final FileBasedConfig config = new FileBasedConfig(file, FS.DETECTED);
+		config.load();
+		assertEquals(ALICE, config.getString(USER, null, NAME));
+
+		config.setString(USER, null, NAME, BOB);
+		config.save();
+		assertArrayEquals(CONTENT2.getBytes(), IO.readFully(file));
+	}
+
+	@Test
+	public void testUTF8withoutBOM() throws IOException, ConfigInvalidException {
+		final File file = createFile(CONTENT1.getBytes("UTF-8"));
+		final FileBasedConfig config = new FileBasedConfig(file, FS.DETECTED);
+		config.load();
+		assertEquals(ALICE, config.getString(USER, null, NAME));
+
+		config.setString(USER, null, NAME, BOB);
+		config.save();
+		assertArrayEquals(CONTENT2.getBytes(), IO.readFully(file));
+	}
+
+	@Test
+	public void testUTF8withBOM() throws IOException, ConfigInvalidException {
+		final ByteArrayOutputStream bos1 = new ByteArrayOutputStream();
+		bos1.write(0xEF);
+		bos1.write(0xBB);
+		bos1.write(0xBF);
+		bos1.write(CONTENT1.getBytes("UTF-8"));
+
+		final File file = createFile(bos1.toByteArray());
+		final FileBasedConfig config = new FileBasedConfig(file, FS.DETECTED);
+		config.load();
+		assertEquals(ALICE, config.getString(USER, null, NAME));
+
+		config.setString(USER, null, NAME, BOB);
+		config.save();
+
+		final ByteArrayOutputStream bos2 = new ByteArrayOutputStream();
+		bos2.write(0xEF);
+		bos2.write(0xBB);
+		bos2.write(0xBF);
+		bos2.write(CONTENT2.getBytes("UTF-8"));
+		assertArrayEquals(bos2.toByteArray(), IO.readFully(file));
+	}
+
+	@Test
+	public void testLeadingWhitespaces() throws IOException, ConfigInvalidException {
+		final ByteArrayOutputStream bos1 = new ByteArrayOutputStream();
+		bos1.write(" \n\t".getBytes());
+		bos1.write(CONTENT1.getBytes());
+
+		final File file = createFile(bos1.toByteArray());
+		final FileBasedConfig config = new FileBasedConfig(file, FS.DETECTED);
+		config.load();
+		assertEquals(ALICE, config.getString(USER, null, NAME));
+
+		config.setString(USER, null, NAME, BOB);
+		config.save();
+
+		final ByteArrayOutputStream bos2 = new ByteArrayOutputStream();
+		bos2.write(" \n\t".getBytes());
+		bos2.write(CONTENT2.getBytes());
+		assertArrayEquals(bos2.toByteArray(), IO.readFully(file));
+	}
+
+	private File createFile(byte[] content) throws IOException {
+		trash.mkdirs();
+		File f = File.createTempFile(getClass().getName(), null, trash);
+		FileOutputStream os = new FileOutputStream(f, true);
+		try {
+			os.write(content);
+		} finally {
+			os.close();
+		}
+		return f;
+	}
+}
diff --git a/org.eclipse.jgit/src/org/eclipse/jgit/storage/file/FileBasedConfig.java b/org.eclipse.jgit/src/org/eclipse/jgit/storage/file/FileBasedConfig.java
index f30253675..7ae491b38 100644
--- a/org.eclipse.jgit/src/org/eclipse/jgit/storage/file/FileBasedConfig.java
+++ b/org.eclipse.jgit/src/org/eclipse/jgit/storage/file/FileBasedConfig.java
@@ -49,6 +49,7 @@
 
 package org.eclipse.jgit.storage.file;
 
+import java.io.ByteArrayOutputStream;
 import java.io.File;
 import java.io.FileNotFoundException;
 import java.io.IOException;
@@ -70,8 +71,13 @@
  */
 public class FileBasedConfig extends StoredConfig {
 	private final File configFile;
+
 	private final FS fs;
+
+	private boolean utf8Bom;
+
 	private volatile FileSnapshot snapshot;
+
 	private volatile ObjectId hash;
 
 	/**
@@ -141,7 +147,16 @@ public void load() throws IOException, ConfigInvalidException {
 				else
 					snapshot = newSnapshot;
 			} else {
-				fromText(RawParseUtils.decode(in));
+				final String decoded;
+				if (in.length >= 3 && in[0] == (byte) 0xEF
+						&& in[1] == (byte) 0xBB && in[2] == (byte) 0xBF) {
+					decoded = RawParseUtils.decode(RawParseUtils.UTF8_CHARSET,
+							in, 3, in.length);
+					utf8Bom = true;
+				} else {
+					decoded = RawParseUtils.decode(in);
+				}
+				fromText(decoded);
 				snapshot = newSnapshot;
 				hash = newHash;
 			}
@@ -170,7 +185,19 @@ public void load() throws IOException, ConfigInvalidException {
 	 *             the file could not be written.
 	 */
 	public void save() throws IOException {
-		final byte[] out = Constants.encode(toText());
+		final byte[] out;
+		final String text = toText();
+		if (utf8Bom) {
+			final ByteArrayOutputStream bos = new ByteArrayOutputStream();
+			bos.write(0xEF);
+			bos.write(0xBB);
+			bos.write(0xBF);
+			bos.write(text.getBytes(RawParseUtils.UTF8_CHARSET));
+			out = bos.toByteArray();
+		} else {
+			out = Constants.encode(text);
+		}
+
 		final LockFile lf = new LockFile(getFile(), fs);
 		if (!lf.lock())
 			throw new LockFailedException(getFile());
diff --git a/org.eclipse.jgit/src/org/eclipse/jgit/util/RawParseUtils.java b/org.eclipse.jgit/src/org/eclipse/jgit/util/RawParseUtils.java
index 91184bad6..89fbeed89 100644
--- a/org.eclipse.jgit/src/org/eclipse/jgit/util/RawParseUtils.java
+++ b/org.eclipse.jgit/src/org/eclipse/jgit/util/RawParseUtils.java
@@ -65,6 +65,11 @@
 
 /** Handy utility functions to parse raw object contents. */
 public final class RawParseUtils {
+	/**
+	 * UTF-8 charset constant.
+	 */
+	public static final Charset UTF8_CHARSET = Charset.forName("UTF-8");
+
 	private static final byte[] digits10;
 
 	private static final byte[] digits16;