diff --git a/io-engine-tests/src/nexus.rs b/io-engine-tests/src/nexus.rs
index 2ae347dba..15f03f4cb 100644
--- a/io-engine-tests/src/nexus.rs
+++ b/io-engine-tests/src/nexus.rs
@@ -130,6 +130,11 @@ impl NexusBuilder {
         self.with_bdev(&bdev)
     }
 
+    pub fn with_replicas(self, replicas: &[ReplicaBuilder]) -> Self {
+        let cc = replicas.iter().map(|r| self.replica_uri(r)).collect();
+        self.with_children(cc)
+    }
+
     pub fn with_local_replica(self, r: &ReplicaBuilder) -> Self {
         if r.rpc() != self.rpc() {
             panic!("Replica is not local");
@@ -152,7 +157,7 @@ impl NexusBuilder {
         self
     }
 
-    fn replica_uri(&self, r: &ReplicaBuilder) -> String {
+    pub fn replica_uri(&self, r: &ReplicaBuilder) -> String {
         if r.rpc() == self.rpc() {
             r.bdev()
         } else {
diff --git a/io-engine/src/bdev/nexus/nexus_bdev_rebuild.rs b/io-engine/src/bdev/nexus/nexus_bdev_rebuild.rs
index c58aa184e..cecae8f33 100644
--- a/io-engine/src/bdev/nexus/nexus_bdev_rebuild.rs
+++ b/io-engine/src/bdev/nexus/nexus_bdev_rebuild.rs
@@ -87,15 +87,11 @@ impl<'n> Nexus<'n> {
         info!("{self:?}: start rebuild request for {child_uri}");
 
         // Find a healthy child to rebuild from.
-        let src_child_uri = match self
-            .children_iter()
-            .find(|c| c.is_healthy() && c.uri() != child_uri)
-        {
-            Some(child) => Ok(child.uri().to_owned()),
-            None => Err(Error::NoRebuildSource {
+        let Some(src_child_uri) = self.find_src_replica(child_uri) else {
+            return Err(Error::NoRebuildSource {
                 name: name.clone(),
-            }),
-        }?;
+            });
+        };
 
         let dst_child_uri = match self.lookup_child(child_uri) {
             Some(c) if c.is_opened_unsync() => {
@@ -157,6 +153,20 @@ impl<'n> Nexus<'n> {
             })
     }
 
+    /// Finds the best suited source replica for the given destination.
+    fn find_src_replica(&self, dst_uri: &str) -> Option<String> {
+        let candidates: Vec<_> = self
+            .children_iter()
+            .filter(|c| c.is_healthy() && c.uri() != dst_uri)
+            .collect();
+
+        candidates
+            .iter()
+            .find(|c| c.is_local().unwrap_or(false))
+            .or_else(|| candidates.first())
+            .map(|c| c.uri().to_owned())
+    }
+
     /// TODO
     async fn create_rebuild_job(
         &self,
diff --git a/io-engine/tests/nexus_rebuild_source.rs b/io-engine/tests/nexus_rebuild_source.rs
new file mode 100644
index 000000000..3f2073d89
--- /dev/null
+++ b/io-engine/tests/nexus_rebuild_source.rs
@@ -0,0 +1,222 @@
+pub mod common;
+
+use common::{
+    compose::{
+        rpc::v1::{
+            nexus::{ChildState, ChildStateReason},
+            GrpcConnect,
+            SharedRpcHandle,
+        },
+        Binary,
+        Builder,
+    },
+    nexus::NexusBuilder,
+    pool::PoolBuilder,
+    replica::ReplicaBuilder,
+};
+
+const POOL_SIZE: u64 = 200;
+const REPL_SIZE: u64 = 50;
+const NEXUS_SIZE: u64 = REPL_SIZE;
+
+struct TestNode {
+    idx: usize,
+    ms: SharedRpcHandle,
+    pool: PoolBuilder,
+    replicas: Vec<ReplicaBuilder>,
+}
+
+impl TestNode {
+    async fn next_replica(&mut self) -> ReplicaBuilder {
+        let mut repl = ReplicaBuilder::new(self.ms.clone())
+            .with_pool(&self.pool)
+            .with_name(&format!(
+                "repl_{i}_{j}",
+                i = self.idx,
+                j = self.replicas.len()
+            ))
+            .with_new_uuid()
+            .with_size_mb(REPL_SIZE);
+
+        repl.create().await.unwrap();
+        repl.share().await.unwrap();
+        self.replicas.push(repl.clone());
+        repl
+    }
+
+    async fn clear(&mut self) {
+        for i in 0 .. self.replicas.len() {
+            self.replicas[i].destroy().await.unwrap();
+        }
+        self.replicas.clear();
+    }
+}
+
+async fn test_src_selection(
+    nodes: &mut Vec<TestNode>,
+    nex_node: usize,
+    child_cfg: Vec<usize>,
+    dst: usize,
+    expected_src_idx: usize,
+) {
+    let to = std::time::Duration::from_secs(1);
+
+    let mut replicas = Vec::new();
+    for i in 0 .. child_cfg.len() {
+        replicas.push(nodes[child_cfg[i]].next_replica().await);
+    }
+
+    let mut nex = NexusBuilder::new(nodes[nex_node].ms.clone())
+        .with_name("nexus0")
+        .with_new_uuid()
+        .with_size_mb(NEXUS_SIZE)
+        .with_replicas(&replicas);
+
+    nex.create().await.unwrap();
+
+    println!("---------");
+    println!(
+        "> {child_cfg:?}: expect to rebuild #{dst} from #{expected_src_idx}"
+    );
+    let children = nex.get_nexus().await.unwrap().children;
+
+    for (idx, child) in children.iter().enumerate() {
+        println!("    [{idx}] {c:?}", c = child.uri);
+    }
+
+    let r = &replicas[dst];
+    println!("    rebuilding #{dst}: {uri}", uri = nex.replica_uri(r));
+
+    nex.offline_child_replica(r).await.unwrap();
+    nex.wait_replica_state(
+        r,
+        ChildState::Degraded,
+        Some(ChildStateReason::ByClient),
+        to,
+    )
+    .await
+    .unwrap();
+    nex.online_child_replica(r).await.unwrap();
+    nex.wait_children_online(to).await.unwrap();
+
+    let rec = nex
+        .get_rebuild_history()
+        .await
+        .unwrap()
+        .first()
+        .unwrap()
+        .clone();
+
+    let dst_idx = children
+        .iter()
+        .position(|c| c.uri == rec.child_uri)
+        .unwrap();
+    let src_idx = children.iter().position(|c| c.uri == rec.src_uri).unwrap();
+
+    println!(
+        "    rebuilt #{dst_idx}: {dst} from #{src_idx}: {src}",
+        src = rec.src_uri,
+        dst = rec.child_uri
+    );
+
+    assert_eq!(
+        src_idx, expected_src_idx,
+        "Expected child index {expected_src_idx}, got {src_idx}"
+    );
+
+    nex.destroy().await.unwrap();
+    for node in nodes {
+        node.clear().await;
+    }
+}
+
+/// Should prefer a local replica for rebuild source.
+#[tokio::test]
+async fn nexus_rebuild_prefer_local_replica() {
+    common::composer_init();
+
+    let test = Builder::new()
+        .name("cargo-test")
+        .network("10.1.0.0/16")
+        .unwrap()
+        .add_container_bin(
+            "ms_0",
+            Binary::from_dbg("io-engine").with_args(vec![
+                "-l",
+                "1,2",
+                "-Fcolor,compact,host,nodate",
+            ]),
+        )
+        .add_container_bin(
+            "ms_1",
+            Binary::from_dbg("io-engine").with_args(vec![
+                "-l",
+                "3,4",
+                "-Fcolor,compact,host,nodate",
+            ]),
+        )
+        .add_container_bin(
+            "ms_2",
+            Binary::from_dbg("io-engine").with_args(vec![
+                "-l",
+                "5,6",
+                "-Fcolor,compact,host,nodate",
+            ]),
+        )
+        .with_clean(true)
+        .build()
+        .await
+        .unwrap();
+
+    let conn = GrpcConnect::new(&test);
+
+    let mut nodes = Vec::new();
+
+    for idx in 0 .. 3 {
+        let ms = conn.grpc_handle_shared(&format!("ms_{idx}")).await.unwrap();
+
+        let mut pool = PoolBuilder::new(ms.clone())
+            .with_name(&format!("pool_{idx}"))
+            .with_new_uuid()
+            .with_malloc(&format!("mem_{idx}"), POOL_SIZE);
+
+        pool.create().await.unwrap();
+
+        nodes.push(TestNode {
+            idx,
+            ms,
+            pool,
+            replicas: Vec::new(),
+        });
+    }
+
+    // All local, should select first avail.
+    test_src_selection(&mut nodes, 0, vec![0, 0, 0], 0, 1).await;
+    test_src_selection(&mut nodes, 0, vec![0, 0, 0], 1, 0).await;
+    test_src_selection(&mut nodes, 0, vec![0, 0, 0], 2, 0).await;
+
+    // Local-remote-remote, should prefer the local one (here it is #0).
+    test_src_selection(&mut nodes, 0, vec![0, 1, 2], 0, 1).await;
+    test_src_selection(&mut nodes, 0, vec![0, 1, 2], 1, 0).await;
+    test_src_selection(&mut nodes, 0, vec![0, 1, 2], 2, 0).await;
+
+    // Remote-local-remote, should prefer the local one (here it is #1).
+    test_src_selection(&mut nodes, 0, vec![1, 0, 2], 0, 1).await;
+    test_src_selection(&mut nodes, 0, vec![1, 0, 2], 1, 0).await;
+    test_src_selection(&mut nodes, 0, vec![1, 0, 2], 2, 1).await;
+
+    // Remote-remote-local, should prefer the local one (here it is #2).
+    test_src_selection(&mut nodes, 0, vec![1, 2, 0], 0, 2).await;
+    test_src_selection(&mut nodes, 0, vec![1, 2, 0], 1, 2).await;
+    test_src_selection(&mut nodes, 0, vec![1, 2, 0], 2, 0).await;
+
+    // Remote-local-local, should prefer the first avail local one (#1 or #2).
+    test_src_selection(&mut nodes, 0, vec![1, 0, 0], 0, 1).await;
+    test_src_selection(&mut nodes, 0, vec![1, 0, 0], 1, 2).await;
+    test_src_selection(&mut nodes, 0, vec![1, 0, 0], 2, 1).await;
+
+    // All remote, should prefer the first avail.
+    test_src_selection(&mut nodes, 0, vec![1, 1, 1], 0, 1).await;
+    test_src_selection(&mut nodes, 0, vec![1, 1, 1], 1, 0).await;
+    test_src_selection(&mut nodes, 0, vec![1, 1, 1], 2, 0).await;
+}