diff --git a/ear/plugin.jelly b/ear/plugin.jelly
index c2b63084..29a73fcf 100644
--- a/ear/plugin.jelly
+++ b/ear/plugin.jelly
@@ -48,21 +48,30 @@
 
     <ant:mkdir dir="${maven.build.dir}" />
     
-     <j:set var="isGenerateAppXML" 
-            value="${context.getVariable('maven.ear.appxml.generate')}"/>
-     <j:if test="${isGenerateAppXML == 'true'}">
-       <!-- make sure that target directory exists -->       
-       <ant:mkdir dir="${maven.ear.descriptordir}"/>
-       <attainGoal name="ear:generate-ear-descriptor"/>
-     </j:if >
+    <j:set var="finalAppxml" value="${maven.ear.descriptordir}/application.xml"/>
+    <j:set var="isGenerateAppXML" 
+           value="${context.getVariable('maven.ear.appxml.generate')}"/>
+    <!-- make sure that target directory exists -->       
+    <ant:mkdir dir="${maven.ear.descriptordir}"/>
+    <j:choose>
+       <j:when test="${isGenerateAppXML == 'true'}">
+          <attainGoal name="ear:generate-ear-descriptor"/>
+       </j:when>
+       <j:otherwise>
+          <util:available file="${maven.ear.src}/META-INF/application.xml">
+             <ant:copy file="${maven.ear.appxml}" tofile="${finalAppxml}"/>
+          </util:available>
+       </j:otherwise>
+    </j:choose>
+
     
-    <ant:echo>Building EAR ${maven.final.name} with appxml "${maven.ear.appxml}"</ant:echo>
+    <ant:echo>Building EAR ${maven.final.name} with appxml "${finalAppxml}"</ant:echo>
     
     <ant:available property="maven.ear.manifest.available"
       file="${maven.ear.manifest}"/>
 
     <ant:ear destfile="${maven.build.dir}/${maven.final.name}.ear"
-         appxml="${maven.ear.appxml}">
+         appxml="${finalAppxml}">
 
       <!-- include files from maven.ear.src if available -->
       <util:available file="${maven.ear.src}">
@@ -161,9 +170,9 @@
   <!--==================================================================-->
   <goal name="ear:generate-ear-descriptor" description="Generates the ear descriptor">
      
-     <ant:echo>Generating appxml file:"${maven.ear.appxml} version ${maven.ear.appxml.version} encoding: ${maven.ear.appxml.encoding}"</ant:echo>
+     <ant:echo>Generating appxml file:"${finalAppxml} version ${maven.ear.appxml.version} encoding: ${maven.ear.appxml.encoding}"</ant:echo>
      
-     <j:file  name="${maven.ear.appxml}"
+     <j:file  name="${finalAppxml}"
               outputMode="xml"
               prettyPrint="true"
               encoding="${maven.ear.appxml.encoding}"
diff --git a/ear/plugin.properties b/ear/plugin.properties
index b0dafe69..f26190d6 100644
--- a/ear/plugin.properties
+++ b/ear/plugin.properties
@@ -24,9 +24,9 @@
 maven.ear.src=${maven.src.dir}/application
 
 # Location of xml configs and manifest files
-maven.ear.descriptordir=${maven.ear.src}/META-INF
-maven.ear.appxml=${maven.ear.descriptordir}/application.xml
-maven.ear.manifest=${maven.ear.descriptordir}/MANIFEST.MF
+maven.ear.descriptordir=${maven.build.dir}
+maven.ear.appxml=${maven.ear.src}/META-INF/application.xml
+maven.ear.manifest=${maven.ear.src}/META-INF/MANIFEST.MF
 maven.ear.appxml.generate=false
 maven.ear.displayname=${pom.artifactId}
 maven.ear.appxml.version=1.3
diff --git a/ear/src/plugin-test/test03/maven.xml b/ear/src/plugin-test/test03/maven.xml
new file mode 100644
index 00000000..38e65374
--- /dev/null
+++ b/ear/src/plugin-test/test03/maven.xml
@@ -0,0 +1,53 @@
+<!-- 
+/*
+ * Copyright 2001-2004 The Apache Software Foundation.
+ * 
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ * 
+ *      http://www.apache.org/licenses/LICENSE-2.0
+ * 
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+ -->
+<project xmlns:assert="assert"
+         xmlns:util="jelly:util"
+         xmlns:j="jelly:core"
+         xmlns:ant="jelly:ant"
+         default="testPlugin">
+
+  <goal name="testPlugin" prereqs="test-ear">
+    <attainGoal name="clean"/>
+  </goal>
+  
+  <goal name="test-ear" prereqs="ear:init">
+
+    <!-- makes sure application.xml didn't exist before -->
+    <util:available file="${maven.ear.src}/META-INF/application.xml">
+      <ant:fail>Testcase should not have file ${maven.ear.src}/META-INF/application.xml. Please remove it first.</ant:fail>
+    </util:available>
+
+    <attainGoal name="ear"/>
+
+    <!-- makes sure application.xml wasn't added -->
+    <util:available file="${maven.ear.src}/META-INF/application.xml">
+      <ant:fail>Plugin should not have created file ${maven.ear.src}/META-INF/application.xml.</ant:fail>
+    </util:available>
+
+    <!-- tests that the ear is generated -->
+    <assert:assertFileExists file="${maven.build.dir}/${maven.final.name}.ear"/>
+    <!-- extracts the EAR -->
+    <j:set var="tmpEarDir" value="${maven.build.dir}/extractedEar"/>
+    <ant:unzip src="${maven.build.dir}/${maven.final.name}.ear" dest="${tmpEarDir}"/>
+
+    <!-- asserts the application.xml is there -->
+    <assert:assertFileExists file="${tmpEarDir}/META-INF/application.xml"/>
+
+  </goal>
+
+</project>
diff --git a/ear/src/plugin-test/test03/project.properties b/ear/src/plugin-test/test03/project.properties
new file mode 100644
index 00000000..08d24197
--- /dev/null
+++ b/ear/src/plugin-test/test03/project.properties
@@ -0,0 +1,16 @@
+# -------------------------------------------------------------------
+# Copyright 2001-2004 The Apache Software Foundation.
+# 
+# Licensed under the Apache License, Version 2.0 (the "License");
+# you may not use this file except in compliance with the License.
+# You may obtain a copy of the License at
+# 
+#      http://www.apache.org/licenses/LICENSE-2.0
+#  
+# Unless required by applicable law or agreed to in writing, software
+# distributed under the License is distributed on an "AS IS" BASIS,
+# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+# See the License for the specific language governing permissions and
+# limitations under the License.
+# -------------------------------------------------------------------
+maven.ear.appxml.generate=true
diff --git a/ear/src/plugin-test/test03/project.xml b/ear/src/plugin-test/test03/project.xml
new file mode 100644
index 00000000..4f5fe16b
--- /dev/null
+++ b/ear/src/plugin-test/test03/project.xml
@@ -0,0 +1,35 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<!-- 
+/*
+ * Copyright 2001-2004 The Apache Software Foundation.
+ * 
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ * 
+ *      http://www.apache.org/licenses/LICENSE-2.0
+ * 
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+ -->
+
+<project>
+  <pomVersion>3</pomVersion>
+  <name>Test project for Maven Ear Plugin 03</name>
+  <artifactId>test-maven-ear-plugin-03</artifactId>
+  <inceptionYear>2004</inceptionYear>
+  <shortDescription>Tests that application.xml is not generated at maven.ear.src</shortDescription>
+  <shortDescription>Tests that application.xml is not generated at maven.ear.src (see issue MPEAR-7)</shortDescription>
+  <url/>
+  <developers>
+    <developer>
+      <name>Felipe Leme</name>
+      <id>felipeal</id>
+      <role>Jelly Developer</role>
+    </developer>
+  </developers>
+</project>
diff --git a/ear/src/plugin-test/test03/src/application/bogus.jar b/ear/src/plugin-test/test03/src/application/bogus.jar
new file mode 100644
index 00000000..e69de29b
diff --git a/ear/src/plugin-test/test04/maven.xml b/ear/src/plugin-test/test04/maven.xml
new file mode 100644
index 00000000..120721d0
--- /dev/null
+++ b/ear/src/plugin-test/test04/maven.xml
@@ -0,0 +1,55 @@
+<!-- 
+/*
+ * Copyright 2001-2004 The Apache Software Foundation.
+ * 
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ * 
+ *      http://www.apache.org/licenses/LICENSE-2.0
+ * 
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+ -->
+<project xmlns:assert="assert"
+         xmlns:util="jelly:util"
+         xmlns:j="jelly:core"
+         xmlns:ant="jelly:ant"
+         default="testPlugin">
+
+  <goal name="testPlugin" prereqs="test-ear">
+    <attainGoal name="clean"/>
+  </goal>
+  
+  <goal name="test-ear" prereqs="ear:init">
+
+<echo>SRC: ${maven.ear.src}</echo>
+    <!-- makes sure application.xml existed before -->
+    <assert:assertFileExists file="${maven.ear.src}/META-INF/application.xml"/>
+
+    <attainGoal name="ear"/>
+
+    <!-- makes sure application.xml existed after -->
+    <assert:assertFileExists file="${maven.ear.src}/META-INF/application.xml"/>
+
+    <!-- tests that the ear is generated -->
+    <assert:assertFileExists file="${maven.build.dir}/${maven.final.name}.ear"/>
+    <!-- extracts the EAR -->
+    <j:set var="tmpEarDir" value="${maven.build.dir}/extractedEar"/>
+    <ant:unzip src="${maven.build.dir}/${maven.final.name}.ear" dest="${tmpEarDir}"/>
+
+    <!-- asserts the application.xml is there -->
+    <assert:assertFileExists file="${tmpEarDir}/META-INF/application.xml"/>
+
+    <!-- asserts the application.xml content is the same as before -->
+    <util:loadText var="newAppXml" file="${tmpEarDir}/META-INF/application.xml"/>
+    <util:loadText var="oldAppXml" file="${maven.ear.src}/META-INF/application.xml"/>
+    <assert:assertEquals expected="${oldAppXml}" value="${newAppXml}"/>
+
+  </goal>
+
+</project>
diff --git a/ear/src/plugin-test/test04/project.properties b/ear/src/plugin-test/test04/project.properties
new file mode 100644
index 00000000..ccfe9bb5
--- /dev/null
+++ b/ear/src/plugin-test/test04/project.properties
@@ -0,0 +1,16 @@
+# -------------------------------------------------------------------
+# Copyright 2001-2004 The Apache Software Foundation.
+# 
+# Licensed under the Apache License, Version 2.0 (the "License");
+# you may not use this file except in compliance with the License.
+# You may obtain a copy of the License at
+# 
+#      http://www.apache.org/licenses/LICENSE-2.0
+#  
+# Unless required by applicable law or agreed to in writing, software
+# distributed under the License is distributed on an "AS IS" BASIS,
+# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+# See the License for the specific language governing permissions and
+# limitations under the License.
+# -------------------------------------------------------------------
+maven.ear.appxml.generate=false
diff --git a/ear/src/plugin-test/test04/project.xml b/ear/src/plugin-test/test04/project.xml
new file mode 100644
index 00000000..a1567c9f
--- /dev/null
+++ b/ear/src/plugin-test/test04/project.xml
@@ -0,0 +1,35 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<!-- 
+/*
+ * Copyright 2001-2004 The Apache Software Foundation.
+ * 
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ * 
+ *      http://www.apache.org/licenses/LICENSE-2.0
+ * 
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+ -->
+
+<project>
+  <pomVersion>3</pomVersion>
+  <name>Test project for Maven Ear Plugin 04</name>
+  <artifactId>test-maven-ear-plugin-04</artifactId>
+  <inceptionYear>2004</inceptionYear>
+  <shortDescription>Tests that application.xml is correctly bundled</shortDescription>
+  <shortDescription>Tests that application.xml is correctly bundled when it is not generated (see issue MPEAR-7)</shortDescription>
+  <url/>
+  <developers>
+    <developer>
+      <name>Felipe Leme</name>
+      <id>felipeal</id>
+      <role>Jelly Developer</role>
+    </developer>
+  </developers>
+</project>
diff --git a/ear/src/plugin-test/test04/src/application/META-INF/application.xml b/ear/src/plugin-test/test04/src/application/META-INF/application.xml
new file mode 100644
index 00000000..78a49209
--- /dev/null
+++ b/ear/src/plugin-test/test04/src/application/META-INF/application.xml
@@ -0,0 +1,6 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<!DOCTYPE application PUBLIC "-//Sun Microsystems, Inc.//DTD J2EE Application 1.3//EN" "http://java.sun.com/dtd/application_1_3.dtd">
+
+<application>
+  <display-name>My Display</display-name>
+</application>
diff --git a/ear/src/plugin-test/test04/src/application/bogus.jar b/ear/src/plugin-test/test04/src/application/bogus.jar
new file mode 100644
index 00000000..e69de29b
diff --git a/ear/xdocs/changes.xml b/ear/xdocs/changes.xml
index 4686ca1b..4c64ba5a 100644
--- a/ear/xdocs/changes.xml
+++ b/ear/xdocs/changes.xml
@@ -25,6 +25,7 @@
   </properties>
   <body>
     <release version="1.6-SNAPSHOT" date="in CVS">
+      <action dev="felipeal" type="fix" issue="MPEAR-7"><code>application.xml</code> is now generated at <code>maven.build.dir</code></action>
       <action dev="felipeal" type="add" issue="MPEAR-26">Add new property dependency (<code>ear.bundle.name</code>) to define the name a dependency should have the EAR.</action>
       <action dev="felipeal" type="fix" issue="MPEAR-20">Changed the default value of <code>maven.ear.displayname</code>.</action>
       <action dev="felipeal" type="add" issue="MPEAR-23" due-to="Wiley Fuller">Add new property dependency(<code>ear.bundle.dir</code>) to define where a dependency should be added in the EAR.</action>
diff --git a/ear/xdocs/properties.xml b/ear/xdocs/properties.xml
index 72942213..8c964a8f 100644
--- a/ear/xdocs/properties.xml
+++ b/ear/xdocs/properties.xml
@@ -35,7 +35,7 @@
             Location of the manifest file to be used within the ear file.
           </td>
           <td>
-            ${maven.src.dir}/application/META-INF/MANIFEST.MF
+            ${maven.ear.src}/META-INF/MANIFEST.MF
           </td>
         </tr>
         <tr>
@@ -46,7 +46,7 @@
             to be used within the ear file.
           </td>
           <td>
-            ${maven.src.dir}/application/META-INF/application.xml
+            ${maven.ear.src}/META-INF/application.xml
           </td>
         </tr>
         <tr>
@@ -111,6 +111,16 @@
             UTF-8
           </td>
         </tr>
+        <tr>
+          <td>maven.ear.descriptordir</td>
+          <td>Yes</td>
+          <td>
+            Directory where the <code>application.xml</code> file will be auto-generated (only if <code>maven.ear.appxml.generate</code> is true).
+          </td>
+          <td>
+            ${maven.build.dir}
+          </td>
+        </tr>
       </table>
     </section>
     <section name="other settings">