diff --git a/src/ng/compile.js b/src/ng/compile.js
index 1bc059b3..a4e44f01 100644
--- a/src/ng/compile.js
+++ b/src/ng/compile.js
@@ -816,8 +816,9 @@ function $CompileProvider($provide) {
         if (directiveValue = directive.transclude) {
           assertNoDuplicate('transclusion', transcludeDirective, directive, $compileNode);
           transcludeDirective = directive;
-          terminalPriority = directive.priority;
+
           if (directiveValue == 'element') {
+            terminalPriority = directive.priority;
             $template = groupScan(compileNode, attrStart, attrEnd)
             $compileNode = templateAttrs.$$element =
                 jqLite(document.createComment(' ' + directiveName + ': ' + templateAttrs[directiveName] + ' '));
diff --git a/test/ng/compileSpec.js b/test/ng/compileSpec.js
index 1e66b49f..f164ca7a 100755
--- a/test/ng/compileSpec.js
+++ b/test/ng/compileSpec.js
@@ -2905,6 +2905,30 @@ describe('$compile', function() {
         expect(log).toEqual('pre(); post(unicorn!)');
       });
     });
+
+
+    it('should terminate compilation only for element trasclusion', function() {
+      module(function() {
+        directive('elementTrans', function(log) {
+          return {
+            transclude: 'element',
+            priority: 50,
+            compile: log.fn('compile:elementTrans')
+          };
+        });
+        directive('regularTrans', function(log) {
+          return {
+            transclude: true,
+            priority: 50,
+            compile: log.fn('compile:regularTrans')
+          };
+        });
+      });
+      inject(function(log, $compile, $rootScope) {
+        $compile('<div><div element-trans log="elem"></div><div regular-trans log="regular"></div></div>')($rootScope);
+        expect(log).toEqual('compile:elementTrans; compile:regularTrans; regular');
+      });
+    });
   });
 
 
@@ -3256,7 +3280,7 @@ describe('$compile', function() {
       $rootScope.dataOnVar = 'data-on text';
       $rootScope.$apply();
       expect(element.attr('data-on')).toEqual('data-on text');
-      
+
       element = $compile('<button on="{{onVar}}"></script>')($rootScope);
       $rootScope.onVar = 'on text';
       $rootScope.$apply();