diff --git a/README.md b/README.md
index 47013fd..e671eeb 100644
--- a/README.md
+++ b/README.md
@@ -52,8 +52,10 @@ To set a template file, either set the `@@x-template` element in your `arb` file
 ```
 or set a file to be the template in the `l10n.yaml` using:
 ```yaml
-template-arb-file: path/to/template.arb
+arb-dir: path/to
+template-arb-file: template.arb
 ```
+
 You can suppress specific diagnostics warnings by adding into `settings.json`:
 ```json
 "arb-editor.suppressedWarnings": string | string[]
diff --git a/src/extension.ts b/src/extension.ts
index b556c43..93224b4 100644
--- a/src/extension.ts
+++ b/src/extension.ts
@@ -27,9 +27,6 @@ import { CodeActions } from './codeactions';
 import { Decorator } from './decorate';
 import { Diagnostics } from './diagnose';
 import { Literal, MessageList, Parser } from './messageParser';
-import { locateL10nYaml } from './project';
-import YAML = require('yaml');
-import fs = require('fs');
 const snippetsJson = require("../snippets/snippets.json");
 const snippetsInlineJson = require("../snippets/snippets_inline.json");
 
@@ -87,10 +84,14 @@ export async function activate(context: vscode.ExtensionContext) {
 		if (!editor || isNotArbFile(editor.document)) {
 			return;
 		}
-		var l10nYamlPath = locateL10nYaml(editor.document.uri.fsPath);
-		var l10nOptions: L10nYaml | undefined;
-		if (l10nYamlPath) {
-			l10nOptions = parseYaml(l10nYamlPath);
+
+		function parseAndDecorate(): MessageList {
+			return parser.parseAndDecorate({
+				editor: editor!,
+				decorator: decorator,
+				diagnostics: diagnostics,
+				quickfixes: quickfixes,
+			}).messageList;
 		}
 
 		if (executeDelayed && pendingDecorations) {
@@ -103,38 +104,6 @@ export async function activate(context: vscode.ExtensionContext) {
 				commonMessageList = parseAndDecorate();
 			}
 		}
-
-		function parseAndDecorate(): MessageList {
-			let templatePathFromOptions = l10nOptions?.['template-arb-file'];
-			let templateMessageList: MessageList | undefined;
-			let templateErrors: Literal[] | undefined;
-			let [templatePathFromFile, messageList, errors] = parser.parse(editor!.document.getText(), l10nOptions)!;
-			if (templatePathFromOptions || templatePathFromFile) {
-				let templatePath: string;
-				if (templatePathFromFile) {
-					if (path.isAbsolute(templatePathFromFile)) {
-						templatePath = templatePathFromFile;
-					} else {
-						templatePath = path.join(path.dirname(editor?.document.uri.path!), templatePathFromFile);
-					}
-				} else {
-					if (path.isAbsolute(templatePathFromOptions!)) {
-						templatePath = templatePathFromOptions!;
-					} else {
-						templatePath = path.join(path.dirname(l10nYamlPath!), templatePathFromOptions!);
-					}
-				}
-				if (templatePath !== editor!.document.uri.fsPath) {
-					const template = fs.readFileSync(templatePath, "utf8");
-					// TODO(mosuem): Allow chaining of template files.
-					[, templateMessageList, templateErrors] = parser.parse(template, l10nOptions)!;
-				}
-			}
-			decorator.decorate(editor!, messageList);
-			diagnostics.diagnose(editor!, messageList, errors, templateMessageList);
-			quickfixes.update(messageList);
-			return messageList;
-		}
 	}
 }
 
@@ -164,14 +133,6 @@ function getSnippets(snippetsJson: any): vscode.CompletionList {
 // This method is called when your extension is deactivated
 export function deactivate() { }
 
-function parseYaml(uri: string): L10nYaml | undefined {
-	if (!fs.existsSync(uri)) {
-		return;
-	}
-	const yaml = fs.readFileSync(uri, "utf8");
-	return YAML.parse(yaml) as L10nYaml;
-}
-
 export interface L10nYaml {
 	'arb-dir'?: string | undefined;
 	'output-dir'?: string | undefined;
diff --git a/src/messageParser.ts b/src/messageParser.ts
index 645318f..acbc852 100644
--- a/src/messageParser.ts
+++ b/src/messageParser.ts
@@ -10,13 +10,21 @@
 // limitations under the License.
 'use strict';
 
+import * as vscode from 'vscode';
 import { JSONPath, visit } from 'jsonc-parser';
 import XRegExp = require('xregexp');
+import { locateL10nYaml } from './project';
 import { L10nYaml } from './extension';
+import { Diagnostics } from './diagnose';
+import { Decorator } from './decorate';
+import { CodeActions } from './codeactions';
+import path = require('path');
+import YAML = require('yaml');
+import fs = require('fs');
 
 export class Parser {
 
-	parse(document: string, l10nOptions?: L10nYaml): [string|undefined, MessageList, Literal[]] {
+	parse(document: string, l10nOptions?: L10nYaml): [MessageList, Literal[]] {
 		let templatePath: string | undefined;
 		const messages: MessageEntry[] = [];
 		const metadata: MessageEntry[] = [];
@@ -25,7 +33,7 @@ export class Parser {
 		let inTemplateTag = false;
 		let placeholderLevel: number | null = null;
 		let metadataLevel: number | null = null;
-		let metadataKey: Key | null = null;	
+		let metadataKey: Key | null = null;
 		let messageKey: Key | null = null;
 		let definedPlaceholders: PlaceholderMetadata[] = [];
 		let errors: Literal[] = [];
@@ -172,8 +180,84 @@ export class Parser {
 			}
 		}
 
-		return [templatePath, new MessageList(templatePath, indentation ?? 0, indentationCharacter ?? ' ', messages, metadata), errors];
+		return [new MessageList(templatePath, indentation ?? 0, indentationCharacter ?? ' ', messages, metadata), errors];
 	}
+
+
+	private resolveTemplatePath({
+		document,
+		messageList,
+		l10nYamlPath,
+		l10nOptions,
+	}: {
+		document: vscode.TextDocument;
+		messageList: MessageList;
+	} & L10nYamlPathAndOptions): string | undefined {
+		if (messageList.templatePath) {
+			return path.isAbsolute(messageList.templatePath)
+				? messageList.templatePath
+				: path.join(path.dirname(document.uri.fsPath), messageList.templatePath);
+		} else if (l10nOptions !== undefined) {
+			const templateRootFromOptions = l10nOptions?.['arb-dir'] ?? 'lib/l10n';
+			const templatePathFromOptions = l10nOptions?.['template-arb-file'] ?? 'app_en.arb';
+
+			return path.isAbsolute(templatePathFromOptions)
+				? templatePathFromOptions
+				: path.join(path.dirname(l10nYamlPath), templateRootFromOptions, templatePathFromOptions);
+		}
+	}
+
+	parseAndDecorate({
+		editor,
+		decorator,
+		diagnostics,
+		quickfixes,
+	}: ParseAndDecorateOptions): ParseAndDecorateResult {
+		let templateMessageList: MessageList | undefined;
+
+		const l10nYamlPath = locateL10nYaml(editor.document.uri.fsPath);
+		const l10nOptions = l10nYamlPath
+			? parseYaml(l10nYamlPath)
+			: undefined;
+		const [messageList, errors] = this.parse(editor.document.getText(), l10nOptions)!;
+
+		const templatePath = this.resolveTemplatePath({
+			document: editor.document,
+			messageList,
+			l10nYamlPath: l10nYamlPath!,
+			l10nOptions: l10nOptions,
+		});
+
+		if (templatePath && templatePath !== editor.document.uri.fsPath) {
+			const template = fs.readFileSync(templatePath, "utf8");
+			// TODO(mosuem): Allow chaining of template files.
+			[templateMessageList,] = this.parse(template, l10nOptions)!;
+		}
+
+		const decorations = decorator.decorate(editor, messageList);
+		const diags = diagnostics.diagnose(editor, messageList, errors, templateMessageList);
+		quickfixes.update(messageList);
+		return { messageList, decorations, diagnostics: diags };
+	}
+}
+
+type L10nYamlPathAndOptions = {
+	l10nYamlPath: string;
+	l10nOptions: L10nYaml;
+} | {
+	l10nYamlPath: string | undefined;
+	l10nOptions: undefined;
+};
+interface ParseAndDecorateResult {
+	messageList: MessageList;
+	decorations: Map<vscode.TextEditorDecorationType, vscode.Range[]>;
+	diagnostics: vscode.Diagnostic[];
+}
+interface ParseAndDecorateOptions {
+	editor: vscode.TextEditor;
+	decorator: Decorator;
+	diagnostics: Diagnostics;
+	quickfixes: CodeActions;
 }
 
 function matchCurlyBrackets(v: string, l10nOptions?: L10nYaml): XRegExp.MatchRecursiveValueNameMatch[] {
@@ -189,6 +273,14 @@ function matchCurlyBrackets(v: string, l10nOptions?: L10nYaml): XRegExp.MatchRec
 	return values;
 }
 
+function parseYaml(uri: string): L10nYaml | undefined {
+	if (!fs.existsSync(uri)) {
+		return;
+	}
+	const yaml = fs.readFileSync(uri, "utf8");
+	return YAML.parse(yaml) as L10nYaml;
+}
+
 export function getUnescapedRegions(expression: string, l10nOptions?: L10nYaml): [number, number][] {
 	const unEscapedRegions: [number, number][] = [];
 
diff --git a/src/test/l10nYaml/arb-dir/_l10n/app_en.arb b/src/test/l10nYaml/arb-dir/_l10n/app_en.arb
new file mode 100644
index 0000000..2d6ff2d
--- /dev/null
+++ b/src/test/l10nYaml/arb-dir/_l10n/app_en.arb
@@ -0,0 +1,5 @@
+{
+    "@@locale": "en",
+    "appName": "Demo app",
+    "dir": "dir"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/arb-dir/_l10n/testarb_2.annotated b/src/test/l10nYaml/arb-dir/_l10n/testarb_2.annotated
new file mode 100644
index 0000000..c03563f
--- /dev/null
+++ b/src/test/l10nYaml/arb-dir/_l10n/testarb_2.annotated
@@ -0,0 +1,4 @@
+{
+    "@@locale": "en"
+}
+ [Warning]:"Missing messages from template: appName, dir"
\ No newline at end of file
diff --git a/src/test/l10nYaml/arb-dir/_l10n/testarb_2.arb b/src/test/l10nYaml/arb-dir/_l10n/testarb_2.arb
new file mode 100644
index 0000000..9dae4a2
--- /dev/null
+++ b/src/test/l10nYaml/arb-dir/_l10n/testarb_2.arb
@@ -0,0 +1,3 @@
+{
+    "@@locale": "en"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/arb-dir/l10n.yaml b/src/test/l10nYaml/arb-dir/l10n.yaml
new file mode 100644
index 0000000..1b6e6c2
--- /dev/null
+++ b/src/test/l10nYaml/arb-dir/l10n.yaml
@@ -0,0 +1,4 @@
+arb-dir: _l10n
+output-class: Words
+output-localization-file: app_localizations.dart
+untranslated-messages-file: lib/_l10n/desiredFileName.txt
diff --git a/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb.arb b/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb.arb
new file mode 100644
index 0000000..5351fd9
--- /dev/null
+++ b/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb.arb
@@ -0,0 +1,5 @@
+{
+    "@@locale": "en",
+    "appName": "Demo app",
+    "dirAndTemplate": "dirAndTemplate"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb_2.annotated b/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb_2.annotated
new file mode 100644
index 0000000..266559f
--- /dev/null
+++ b/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb_2.annotated
@@ -0,0 +1,4 @@
+{
+    "@@locale": "en"
+}
+ [Warning]:"Missing messages from template: appName, dirAndTemplate"
\ No newline at end of file
diff --git a/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb_2.arb b/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb_2.arb
new file mode 100644
index 0000000..9dae4a2
--- /dev/null
+++ b/src/test/l10nYaml/arb-dir_template-arb-file/_l10n/testarb_2.arb
@@ -0,0 +1,3 @@
+{
+    "@@locale": "en"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/arb-dir_template-arb-file/l10n.yaml b/src/test/l10nYaml/arb-dir_template-arb-file/l10n.yaml
new file mode 100644
index 0000000..8109eb0
--- /dev/null
+++ b/src/test/l10nYaml/arb-dir_template-arb-file/l10n.yaml
@@ -0,0 +1,5 @@
+arb-dir: _l10n
+template-arb-file: testarb.arb
+output-class: Words
+output-localization-file: app_localizations.dart
+untranslated-messages-file: lib/_l10n/desiredFileName.txt
diff --git a/src/test/l10nYaml/empty/l10n.yaml b/src/test/l10nYaml/empty/l10n.yaml
new file mode 100644
index 0000000..e69de29
diff --git a/src/test/l10nYaml/empty/lib/l10n/app_en.arb b/src/test/l10nYaml/empty/lib/l10n/app_en.arb
new file mode 100644
index 0000000..ce61832
--- /dev/null
+++ b/src/test/l10nYaml/empty/lib/l10n/app_en.arb
@@ -0,0 +1,5 @@
+{
+    "@@locale": "en",
+    "appName": "Demo app",
+    "empty": "empty"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/empty/lib/l10n/testarb_2.annotated b/src/test/l10nYaml/empty/lib/l10n/testarb_2.annotated
new file mode 100644
index 0000000..84ea63e
--- /dev/null
+++ b/src/test/l10nYaml/empty/lib/l10n/testarb_2.annotated
@@ -0,0 +1,4 @@
+{
+    "@@locale": "en"
+}
+ [Warning]:"Missing messages from template: appName, empty"
\ No newline at end of file
diff --git a/src/test/l10nYaml/empty/lib/l10n/testarb_2.arb b/src/test/l10nYaml/empty/lib/l10n/testarb_2.arb
new file mode 100644
index 0000000..9dae4a2
--- /dev/null
+++ b/src/test/l10nYaml/empty/lib/l10n/testarb_2.arb
@@ -0,0 +1,3 @@
+{
+    "@@locale": "en"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/template-arb-file/l10n.yaml b/src/test/l10nYaml/template-arb-file/l10n.yaml
new file mode 100644
index 0000000..54e61b1
--- /dev/null
+++ b/src/test/l10nYaml/template-arb-file/l10n.yaml
@@ -0,0 +1,4 @@
+template-arb-file: testarb.arb
+output-class: Words
+output-localization-file: app_localizations.dart
+untranslated-messages-file: lib/_l10n/desiredFileName.txt
diff --git a/src/test/l10nYaml/template-arb-file/lib/l10n/testarb.arb b/src/test/l10nYaml/template-arb-file/lib/l10n/testarb.arb
new file mode 100644
index 0000000..e4d076a
--- /dev/null
+++ b/src/test/l10nYaml/template-arb-file/lib/l10n/testarb.arb
@@ -0,0 +1,5 @@
+{
+    "@@locale": "en",
+    "appName": "Demo app",
+    "template": "template"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/template-arb-file/lib/l10n/testarb_2.annotated b/src/test/l10nYaml/template-arb-file/lib/l10n/testarb_2.annotated
new file mode 100644
index 0000000..412e42f
--- /dev/null
+++ b/src/test/l10nYaml/template-arb-file/lib/l10n/testarb_2.annotated
@@ -0,0 +1,4 @@
+{
+    "@@locale": "en"
+}
+ [Warning]:"Missing messages from template: appName, template"
\ No newline at end of file
diff --git a/src/test/l10nYaml/template-arb-file/lib/l10n/testarb_2.arb b/src/test/l10nYaml/template-arb-file/lib/l10n/testarb_2.arb
new file mode 100644
index 0000000..9dae4a2
--- /dev/null
+++ b/src/test/l10nYaml/template-arb-file/lib/l10n/testarb_2.arb
@@ -0,0 +1,3 @@
+{
+    "@@locale": "en"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/with_x-template/l10n.yaml b/src/test/l10nYaml/with_x-template/l10n.yaml
new file mode 100644
index 0000000..a69243c
--- /dev/null
+++ b/src/test/l10nYaml/with_x-template/l10n.yaml
@@ -0,0 +1,5 @@
+arb-dir: lib/_l10n
+template-arb-file: app_ja.arb
+output-class: Words
+output-localization-file: app_localizations.dart
+untranslated-messages-file: lib/_l10n/desiredFileName.txt
diff --git a/src/test/l10nYaml/with_x-template/l10n/testarb.arb b/src/test/l10nYaml/with_x-template/l10n/testarb.arb
new file mode 100644
index 0000000..cb0f9df
--- /dev/null
+++ b/src/test/l10nYaml/with_x-template/l10n/testarb.arb
@@ -0,0 +1,5 @@
+{
+    "@@locale": "en",
+    "appName": "Demo app",
+    "withTemplate": "withTemplate"
+}
\ No newline at end of file
diff --git a/src/test/l10nYaml/with_x-template/l10n/testarb_2.annotated b/src/test/l10nYaml/with_x-template/l10n/testarb_2.annotated
new file mode 100644
index 0000000..3485ed0
--- /dev/null
+++ b/src/test/l10nYaml/with_x-template/l10n/testarb_2.annotated
@@ -0,0 +1,5 @@
+{
+    "@@locale": "en",
+    "@@x-template": "testarb.arb"
+}
+ [Warning]:"Missing messages from template: appName, withTemplate"
\ No newline at end of file
diff --git a/src/test/l10nYaml/with_x-template/l10n/testarb_2.arb b/src/test/l10nYaml/with_x-template/l10n/testarb_2.arb
new file mode 100644
index 0000000..6212353
--- /dev/null
+++ b/src/test/l10nYaml/with_x-template/l10n/testarb_2.arb
@@ -0,0 +1,4 @@
+{
+    "@@locale": "en",
+    "@@x-template": "testarb.arb"
+}
\ No newline at end of file
diff --git a/src/test/pubspec.yaml b/src/test/pubspec.yaml
new file mode 100644
index 0000000..1a44341
--- /dev/null
+++ b/src/test/pubspec.yaml
@@ -0,0 +1 @@
+name: Dummy
\ No newline at end of file
diff --git a/src/test/suite/extension.test.ts b/src/test/suite/extension.test.ts
index 7eeccc3..02fd78d 100644
--- a/src/test/suite/extension.test.ts
+++ b/src/test/suite/extension.test.ts
@@ -20,6 +20,8 @@ import * as vscode from 'vscode';
 import { placeholderDecoration, selectDecoration, pluralDecoration, Decorator } from '../../decorate';
 import { CombinedMessage, Key, Literal, MessageList, Parser, getUnescapedRegions } from '../../messageParser';
 import { DiagnosticCode, Diagnostics } from '../../diagnose';
+import { L10nYaml } from '../../extension';
+import { CodeActions } from '../../codeactions';
 
 const annotationNames = new Map<vscode.TextEditorDecorationType, string>([
 	[placeholderDecoration, '[decoration]placeholder'],
@@ -30,19 +32,19 @@ const annotationNames = new Map<vscode.TextEditorDecorationType, string>([
 suite('Extension Test Suite', async () => {
 	test("Decorate golden file.", async () => {
 		await updateConfiguration(null);
-		const contentWithAnnotations = await buildContentWithAnnotations('testarb.arb', undefined);
+		const contentWithAnnotations = await buildContentWithAnnotations('testarb.arb');
 		await compareGolden(contentWithAnnotations, 'testarb.annotated');
 	});
 
 	test("Decorate golden file with template.", async () => {
 		await updateConfiguration(null);
-		const contentWithAnnotations = await buildContentWithAnnotations('testarb_2.arb', 'testarb.arb');
+		const contentWithAnnotations = await buildContentWithAnnotations('testarb_2.arb');
 		await compareGolden(contentWithAnnotations, 'testarb_2.annotated');
 	});
 
 	test("Decorate golden file with template that has no missing messages.", async () => {
 		await updateConfiguration(null);
-		const contentWithAnnotations = await buildContentWithAnnotations('testarb_3.arb', 'testarb.arb');
+		const contentWithAnnotations = await buildContentWithAnnotations('testarb_3.arb');
 		await compareGolden(contentWithAnnotations, 'testarb_3.annotated');
 	});
 
@@ -78,7 +80,7 @@ suite('Extension Test Suite', async () => {
 				}
 			}
 		}`;
-		const [, messages, errors] = new Parser().parse(document);
+		const [messages, errors] = new Parser().parse(document);
 		assert.equal(errors.length, 0);
 		assert.equal(messages.messageEntries.length, 6);
 		assert.equal(messages.metadataEntries.length, 5);
@@ -114,7 +116,7 @@ suite('Extension Test Suite', async () => {
 
 		const document = await getEditor('testarb.arb');
 
-		const [, messageList, errors] = new Parser().parse(document.document.getText())!;
+		const [messageList, errors] = new Parser().parse(document.document.getText())!;
 		const diagnosticsList = new Diagnostics().diagnose(document, messageList, errors, undefined);
 
 		assert.equal(diagnosticsList.length, 0);
@@ -123,10 +125,10 @@ suite('Extension Test Suite', async () => {
 	test("Test suppressed warning with id missing_metadata_for_key", async () => {
 		const id = DiagnosticCode.missingMetadataForKey;
 		await updateConfiguration([id]);
-		
+
 		const document = await getEditor('quickfix.arb');
 
-		const [, messageList, errors] = new Parser().parse(document.document.getText())!;
+		const [messageList, errors] = new Parser().parse(document.document.getText())!;
 		const diagnosticsList = new Diagnostics().diagnose(document, messageList, errors, undefined);
 
 		assert.equal(diagnosticsList.every(item => item.code !== id), true);
@@ -135,10 +137,10 @@ suite('Extension Test Suite', async () => {
 	test("Test suppressed warning with id 'invalid_key', 'missing_metadata_for_key'", async () => {
 		const ids = [DiagnosticCode.invalidKey, DiagnosticCode.missingMetadataForKey];
 		await updateConfiguration(ids);
-		
+
 		const document = await getEditor('testarb_2.arb');
 
-		const [, messageList, errors] = new Parser().parse(document.document.getText())!;
+		const [messageList, errors] = new Parser().parse(document.document.getText())!;
 		const diagnosticsList = new Diagnostics().diagnose(document, messageList, errors, undefined);
 
 		assert.equal(diagnosticsList.every(item => !ids.includes(item.code as DiagnosticCode)), true);
@@ -147,14 +149,53 @@ suite('Extension Test Suite', async () => {
 	test("Test suppressed warning with code 'metadata_for_missing_key'", async () => {
 		const id = DiagnosticCode.metadataForMissingKey;
 		await updateConfiguration([id]);
-		
+
 		const document = await getEditor('testarb_2.arb');
 
-		const [, messageList, errors] = new Parser().parse(document.document.getText())!;
+		const [messageList, errors] = new Parser().parse(document.document.getText())!;
 		const diagnosticsList = new Diagnostics().diagnose(document, messageList, errors, undefined);
 
 		assert.equal(diagnosticsList.every(item => item.code !== id), true);
 	});
+
+	suite('Template Path', async () => {
+		/* eslint-disable @typescript-eslint/naming-convention */
+		test("Resolve template path from @@x-template with L10nYaml", async () => {
+			const testDir = 'l10nYaml/with_x-template/l10n';
+			await updateConfiguration(null);
+			const contentWithAnnotations = await buildContentWithAnnotations(`${testDir}/testarb_2.arb`);
+			await compareGolden(contentWithAnnotations, `${testDir}/testarb_2.annotated`);
+		});
+
+		test("Resolve template path from empty L10nYaml", async () => {
+			const testDir = 'l10nYaml/empty/lib/l10n';
+			await updateConfiguration(null);
+			const contentWithAnnotations = await buildContentWithAnnotations(`${testDir}/testarb_2.arb`);
+			await compareGolden(contentWithAnnotations, `${testDir}/testarb_2.annotated`);
+		});
+
+		test("Resolve template path from L10nYaml with arb-dir and template-arb-file", async () => {
+			const testDir = 'l10nYaml/arb-dir_template-arb-file/_l10n';
+			await updateConfiguration(null);
+			const contentWithAnnotations = await buildContentWithAnnotations(`${testDir}/testarb_2.arb`);
+			await compareGolden(contentWithAnnotations, `${testDir}/testarb_2.annotated`);
+		});
+
+		test("Resolve template path from L10nYaml with template-arb-file", async () => {
+			const testDir = 'l10nYaml/template-arb-file/lib/l10n';
+			await updateConfiguration(null);
+			const contentWithAnnotations = await buildContentWithAnnotations(`${testDir}/testarb_2.arb`);
+			await compareGolden(contentWithAnnotations, `${testDir}/testarb_2.annotated`);
+		});
+
+		test("Resolve template path from L10nYaml with arb-dir", async () => {
+			const testDir = 'l10nYaml/arb-dir/_l10n';
+			await updateConfiguration(null);
+			const contentWithAnnotations = await buildContentWithAnnotations(`${testDir}/testarb_2.arb`);
+			await compareGolden(contentWithAnnotations, `${testDir}/testarb_2.annotated`);
+		});
+		/* eslint-enable */
+	});
 });
 
 const testFolderLocation: string = "/../../../src/test/";
@@ -173,7 +214,7 @@ async function testFixAgainstGolden(testFile: string, getItemFromParsed: (messag
 	const editor = await getEditor(testFile);
 
 	// Parse original
-	const [, messageList,] = new Parser().parse(editor.document.getText());
+	const [messageList,] = new Parser().parse(editor.document.getText());
 
 	// Apply fix for placeholder not defined in metadata
 	const item = getItemFromParsed(messageList);
@@ -209,18 +250,18 @@ async function regenerateGolden(newContent: string, goldenFilename: string) {
 	await vscode.workspace.fs.writeFile(uri, new TextEncoder().encode(newContent));
 }
 
-async function buildContentWithAnnotations(filename: string, templateFile: string | undefined) {
+async function buildContentWithAnnotations(filename: string) {
 	const editor = await getEditor(filename);
 	const editorEol = editor.document.eol === vscode.EndOfLine.CRLF ? "\r\n" : "\n";
-	const [, messageList, errors] = new Parser().parse(editor.document.getText())!;
-	let templateMessageList: MessageList | undefined;
-	let templateErrors: Literal[] | undefined;
-	if (templateFile) {
-		const templateEditor = await getEditor(templateFile);
-		[, templateMessageList, templateErrors] = new Parser().parse(templateEditor.document.getText())!;
-	}
-	const decorations = new Decorator().decorate(editor, messageList);
-	const diagnostics = new Diagnostics().diagnose(editor, messageList, errors, templateMessageList);
+
+	const { decorations, diagnostics } = new Parser().parseAndDecorate({
+		editor,
+		decorator: new Decorator(),
+		diagnostics: new Diagnostics(),
+		quickfixes: new CodeActions(),
+	});
+
+
 	const content = editor.document.getText();
 	const annotationsForLine = new Map<number, string[]>();
 	for (const entry of decorations.entries() ?? []) {