diff --git a/pmd/etc/changelog.txt b/pmd/etc/changelog.txt
index f98fd4ca22..a4a55eedd6 100644
--- a/pmd/etc/changelog.txt
+++ b/pmd/etc/changelog.txt
@@ -2,6 +2,7 @@
 
 Fixed bug 1064: Exception running PrematureDeclaration
 Fixed bug 1068: CPD fails on broken symbolic links
+Fixed bug 1074: rule priority doesn't work on group definitions
 
 
 
diff --git a/pmd/src/main/java/net/sourceforge/pmd/RuleSetFactory.java b/pmd/src/main/java/net/sourceforge/pmd/RuleSetFactory.java
index d634828fbc..c0b3d44b57 100644
--- a/pmd/src/main/java/net/sourceforge/pmd/RuleSetFactory.java
+++ b/pmd/src/main/java/net/sourceforge/pmd/RuleSetFactory.java
@@ -280,11 +280,15 @@ public class RuleSetFactory {
 		RuleSetReference ruleSetReference = new RuleSetReference();
 		ruleSetReference.setAllRules(true);
 		ruleSetReference.setRuleSetFileName(ref);
-		NodeList excludeNodes = ruleElement.getChildNodes();
-		for (int i = 0; i < excludeNodes.getLength(); i++) {
-			if (isElementNode(excludeNodes.item(i),"exclude")) {
-				Element excludeElement = (Element) excludeNodes.item(i);
+		String priority = null;
+		NodeList childNodes = ruleElement.getChildNodes();
+		for (int i = 0; i < childNodes.getLength(); i++) {
+		    Node child = childNodes.item(i);
+			if (isElementNode(child,"exclude")) {
+				Element excludeElement = (Element) child;
 				ruleSetReference.addExclude(excludeElement.getAttribute("name"));
+			} else if (isElementNode(child, "priority")) {
+			    priority = parseTextNode(child).trim();
 			}
 		}
 
@@ -298,6 +302,11 @@ public class RuleSetFactory {
 				ruleReference.setRuleSetReference(ruleSetReference);
 				ruleReference.setRule(rule);
 				ruleSet.addRule(ruleReference);
+
+				// override the priority
+				if (priority != null) {
+				    ruleReference.setPriority(RulePriority.valueOf(Integer.parseInt(priority)));
+				}
 			}
 		}
 	}
diff --git a/pmd/src/test/java/net/sourceforge/pmd/RuleSetFactoryTest.java b/pmd/src/test/java/net/sourceforge/pmd/RuleSetFactoryTest.java
index e83cfb3771..a062bdbacc 100644
--- a/pmd/src/test/java/net/sourceforge/pmd/RuleSetFactoryTest.java
+++ b/pmd/src/test/java/net/sourceforge/pmd/RuleSetFactoryTest.java
@@ -28,6 +28,7 @@ import javax.xml.parsers.ParserConfigurationException;
 import javax.xml.parsers.SAXParser;
 import javax.xml.parsers.SAXParserFactory;
 
+import junit.framework.Assert;
 import junit.framework.JUnit4TestAdapter;
 import net.sourceforge.pmd.lang.Language;
 import net.sourceforge.pmd.lang.LanguageVersion;
@@ -105,6 +106,54 @@ public class RuleSetFactoryTest {
 		assertNotNull(rs.getRuleByName("AvoidEnumAsIdentifier"));
 	}
 
+	@Test
+	public void testExtendedReferences() throws Exception {
+	    InputStream in = ResourceLoader.loadResourceAsStream("net/sourceforge/pmd/rulesets/reference-ruleset.xml",
+		    this.getClass().getClassLoader());
+	    Assert.assertNotNull("Test ruleset not found - can't continue with test!", in);
+
+	    RuleSetFactory rsf = new RuleSetFactory();
+	    RuleSet rs = rsf.createRuleSet("net/sourceforge/pmd/rulesets/reference-ruleset.xml");
+	    // added by referencing a complete ruleset (java-basic)
+	    assertNotNull(rs.getRuleByName("JumbledIncrementer"));
+	    assertNotNull(rs.getRuleByName("ForLoopShouldBeWhileLoop"));
+	    assertNotNull(rs.getRuleByName("OverrideBothEqualsAndHashcode"));
+
+	    // added by specific reference
+	    assertNotNull(rs.getRuleByName("UnusedLocalVariable"));
+	    assertNotNull(rs.getRuleByName("DuplicateImports"));
+	    // this is from java-unusedcode, but not referenced
+	    assertNull(rs.getRuleByName("UnusedPrivateField"));
+
+	    Rule emptyCatchBlock = rs.getRuleByName("EmptyCatchBlock");
+	    assertNotNull(emptyCatchBlock);
+	    // default priority in java-empty is 3, but overridden to 2
+	    assertEquals(2, emptyCatchBlock.getPriority().getPriority());
+
+	    Rule cyclomaticComplexity = rs.getRuleByName("CyclomaticComplexity");
+	    assertNotNull(cyclomaticComplexity);
+	    PropertyDescriptor<?> prop = cyclomaticComplexity.getPropertyDescriptor("reportLevel");
+	    Object property = cyclomaticComplexity.getProperty(prop);
+	    assertEquals("5", String.valueOf(property));
+
+	    // included from braces
+	    assertNotNull(rs.getRuleByName("IfStmtsMustUseBraces"));
+	    // excluded from braces
+	    assertNull(rs.getRuleByName("WhileLoopsMustUseBraces"));
+
+	    // overridden to 5
+	    Rule simplifyBooleanExpressions = rs.getRuleByName("SimplifyBooleanExpressions");
+	    assertNotNull(simplifyBooleanExpressions);
+	    assertEquals(5, simplifyBooleanExpressions.getPriority().getPriority());
+	    // priority overridden for whole design group
+	    Rule useUtilityClass = rs.getRuleByName("UseSingleton");
+	    assertNotNull(useUtilityClass);
+	    assertEquals(2, useUtilityClass.getPriority().getPriority());
+	    Rule simplifyBooleanReturns = rs.getRuleByName("SimplifyBooleanReturns");
+	    assertNotNull(simplifyBooleanReturns);
+	    assertEquals(2, simplifyBooleanReturns.getPriority().getPriority());
+	}
+
 	@Test(expected = RuleSetNotFoundException.class)
 	public void testRuleSetNotFound() throws RuleSetNotFoundException {
 		RuleSetFactory rsf = new RuleSetFactory();
diff --git a/pmd/src/test/resources/net/sourceforge/pmd/rulesets/reference-ruleset.xml b/pmd/src/test/resources/net/sourceforge/pmd/rulesets/reference-ruleset.xml
new file mode 100644
index 0000000000..ccf566657a
--- /dev/null
+++ b/pmd/src/test/resources/net/sourceforge/pmd/rulesets/reference-ruleset.xml
@@ -0,0 +1,46 @@
+<?xml version="1.0"?>
+<ruleset name="Custom ruleset"
+    xmlns="http://pmd.sourceforge.net/ruleset/2.0.0"
+    xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"
+    xsi:schemaLocation="http://pmd.sourceforge.net/ruleset/2.0.0 http://pmd.sourceforge.net/ruleset_2_0_0.xsd">
+
+  <description>
+  This ruleset checks my code for bad stuff
+  </description>
+
+  <!-- We'll use the entire 'basic' ruleset -->
+  <rule ref="rulesets/java/basic.xml"/>
+
+  <!-- Here's some rules we'll specify one at a time -->
+  <rule ref="rulesets/java/unusedcode.xml/UnusedLocalVariable"/>
+  <rule ref="rulesets/java/imports.xml/DuplicateImports"/>
+
+  <!-- We want to customize this rule a bit, change the message and raise the priority  -->
+  <rule
+   ref="rulesets/java/basic.xml/EmptyCatchBlock"
+   message="Must handle exceptions">
+    <priority>2</priority>
+  </rule>
+
+  <!-- Now we'll customize a rule's property value -->
+  <rule ref="rulesets/java/codesize.xml/CyclomaticComplexity">
+    <properties>
+        <property name="reportLevel" value="5"/>
+    </properties>
+  </rule>
+
+  <!-- We want everything from braces.xml except WhileLoopsMustUseBraces -->
+  <rule ref="rulesets/java/braces.xml">
+    <exclude name="WhileLoopsMustUseBraces"/>
+  </rule>
+
+  <!-- override the priority before the group priority - this should be used -->
+  <rule ref="rulesets/java/design.xml/SimplifyBooleanExpressions">
+    <priority>5</priority>
+  </rule>
+
+  <!-- we want to override the priority for all (remaining) rules in design -->
+  <rule ref="rulesets/java/design.xml">
+    <priority>2</priority>
+  </rule>
+</ruleset>
\ No newline at end of file