diff --git a/.changes/v1.13/BUG FIXES-20250524-035653.yaml b/.changes/v1.13/BUG FIXES-20250524-035653.yaml
new file mode 100644
index 000000000000..47adaddbbcb2
--- /dev/null
+++ b/.changes/v1.13/BUG FIXES-20250524-035653.yaml	
@@ -0,0 +1,5 @@
+kind: BUG FIXES
+body: suppress false-positive plugin_cache_dir error when -chdir is used
+time: 2025-05-24T03:56:53.347808+09:00
+custom:
+    Issue: "36881"
diff --git a/internal/command/cliconfig/cliconfig.go b/internal/command/cliconfig/cliconfig.go
index e162fe44f9ee..f96bf71cc5b8 100644
--- a/internal/command/cliconfig/cliconfig.go
+++ b/internal/command/cliconfig/cliconfig.go
@@ -325,11 +325,17 @@ func (c *Config) Validate() tfdiags.Diagnostics {
 	}
 
 	if c.PluginCacheDir != "" {
-		_, err := os.Stat(c.PluginCacheDir)
-		if err != nil {
-			diags = diags.Append(
-				fmt.Errorf("The specified plugin cache dir %s cannot be opened: %s", c.PluginCacheDir, err),
-			)
+		// Skip validation for relative paths here, as they may be intended
+		// to be resolved relative to a directory specified by -chdir, which
+		// is processed after config loading. Relative paths will be
+		// re-validated later in main.go after any -chdir option is processed.
+		if filepath.IsAbs(c.PluginCacheDir) {
+			_, err := os.Stat(c.PluginCacheDir)
+			if err != nil {
+				diags = diags.Append(
+					fmt.Errorf("The specified plugin cache dir %s cannot be opened: %s", c.PluginCacheDir, err),
+				)
+			}
 		}
 	}
 
diff --git a/internal/command/cliconfig/cliconfig_test.go b/internal/command/cliconfig/cliconfig_test.go
index 87720fb7f0b6..2f0088dce332 100644
--- a/internal/command/cliconfig/cliconfig_test.go
+++ b/internal/command/cliconfig/cliconfig_test.go
@@ -357,12 +357,18 @@ func TestConfigValidate(t *testing.T) {
 			},
 			1, // no more than one provider_installation block allowed
 		},
-		"plugin_cache_dir does not exist": {
+		"plugin_cache_dir absolute path does not exist": {
 			&Config{
-				PluginCacheDir: "fake",
+				PluginCacheDir: "/absolute/fake/path",
 			},
 			1, // The specified plugin cache dir %s cannot be opened
 		},
+		"plugin_cache_dir relative path": {
+			&Config{
+				PluginCacheDir: "../relative/fake/path",
+			},
+			0, // Relative paths are not validated in early validation phase
+		},
 	}
 
 	for name, test := range tests {
diff --git a/main.go b/main.go
index cce3f5f998ad..c463211141b3 100644
--- a/main.go
+++ b/main.go
@@ -25,6 +25,7 @@ import (
 	"github.com/hashicorp/terraform/internal/httpclient"
 	"github.com/hashicorp/terraform/internal/logging"
 	"github.com/hashicorp/terraform/internal/terminal"
+	"github.com/hashicorp/terraform/internal/tfdiags"
 	"github.com/hashicorp/terraform/version"
 	"github.com/mattn/go-shellwords"
 	"github.com/mitchellh/colorstring"
@@ -238,6 +239,27 @@ func realMain() int {
 			Ui.Error(fmt.Sprintf("Error handling -chdir option: %s", err))
 			return 1
 		}
+
+		// After changing the working directory with -chdir, we need to re-validate
+		// any relative plugin cache directory paths, since they are resolved relative
+		// to the current working directory.
+		if pluginCacheDir := config.PluginCacheDir; pluginCacheDir != "" && !filepath.IsAbs(pluginCacheDir) {
+			if _, err := os.Stat(pluginCacheDir); err != nil {
+				Ui.Error("There are some problems with the CLI configuration:")
+				earlyColor := &colorstring.Colorize{
+					Colors:  colorstring.DefaultColors,
+					Disable: true,
+					Reset:   true,
+				}
+				diag := tfdiags.Sourceless(
+					tfdiags.Error,
+					"Invalid plugin cache directory",
+					fmt.Sprintf("The specified plugin cache dir %s cannot be opened: %s", pluginCacheDir, err),
+				)
+				Ui.Error(format.Diagnostic(diag, nil, earlyColor, 78))
+				Ui.Error("As a result of the above problems, Terraform may not behave as intended.\n\n")
+			}
+		}
 	}
 
 	// In tests, Commands may already be set to provide mock commands
diff --git a/main_test.go b/main_test.go
index addd07dfebaa..7ba210c3b7a5 100644
--- a/main_test.go
+++ b/main_test.go
@@ -6,10 +6,12 @@ package main
 import (
 	"fmt"
 	"os"
+	"path/filepath"
 	"reflect"
 	"testing"
 
 	"github.com/hashicorp/cli"
+	"github.com/hashicorp/terraform/internal/command/cliconfig"
 )
 
 func TestMain_cliArgsFromEnv(t *testing.T) {
@@ -329,3 +331,58 @@ func TestWarnOutput(t *testing.T) {
 		t.Fatalf("unexpected stdout: %q\n", stdout)
 	}
 }
+
+func TestPluginCacheDirWithChdir(t *testing.T) {
+	// Create a temporary directory structure for testing
+	tmpDir := t.TempDir()
+	subDir := filepath.Join(tmpDir, "subdir")
+	cacheDir := filepath.Join(tmpDir, "cache")
+
+	if err := os.MkdirAll(subDir, 0755); err != nil {
+		t.Fatal(err)
+	}
+	if err := os.MkdirAll(cacheDir, 0755); err != nil {
+		t.Fatal(err)
+	}
+
+	// Save original working directory
+	originalWd, err := os.Getwd()
+	if err != nil {
+		t.Fatal(err)
+	}
+	defer os.Chdir(originalWd)
+
+	// Change to tmpDir
+	if err := os.Chdir(tmpDir); err != nil {
+		t.Fatal(err)
+	}
+
+	// Test case 1: Relative path that exists
+	config := &cliconfig.Config{
+		PluginCacheDir: "../cache",
+	}
+
+	// Change to subdir (simulating -chdir)
+	if err := os.Chdir(subDir); err != nil {
+		t.Fatal(err)
+	}
+
+	// Validate relative path
+	if pluginCacheDir := config.PluginCacheDir; pluginCacheDir != "" && !filepath.IsAbs(pluginCacheDir) {
+		if _, err := os.Stat(pluginCacheDir); err != nil {
+			t.Errorf("Expected relative plugin cache dir to be accessible after chdir, but got error: %v", err)
+		}
+	}
+
+	// Test case 2: Relative path that doesn't exist
+	config2 := &cliconfig.Config{
+		PluginCacheDir: "../nonexistent",
+	}
+
+	// Validate non-existent relative path
+	if pluginCacheDir := config2.PluginCacheDir; pluginCacheDir != "" && !filepath.IsAbs(pluginCacheDir) {
+		if _, err := os.Stat(pluginCacheDir); err == nil {
+			t.Error("Expected non-existent relative plugin cache dir to fail validation")
+		}
+	}
+}