diff --git a/src/vs/workbench/contrib/scm/browser/scmViewService.ts b/src/vs/workbench/contrib/scm/browser/scmViewService.ts
index d7b3583901c7c8..c6f303808de54e 100644
--- a/src/vs/workbench/contrib/scm/browser/scmViewService.ts
+++ b/src/vs/workbench/contrib/scm/browser/scmViewService.ts
@@ -405,6 +405,17 @@ export class SCMViewService implements ISCMViewService {
 					this.didSelectRepository = true;
 				}
 			}
+		} else if (this.previousState && this.didSelectRepository && this.visibleRepositories.length > 0) {
+			// Repositories (ex: submodules) can be discovered after the repositories
+			// finished loading. Keep the repository hidden if it was explicitly hidden
+			// in the previous state.
+			const index = this.previousState.all.indexOf(getProviderStorageKey(repository.provider));
+
+			if (index !== -1 && this.previousState.visible.indexOf(index) === -1) {
+				this.insertRepositoryView(this._repositories, repositoryView);
+				this._onDidChangeRepositories.fire({ added: Iterable.empty(), removed: Iterable.empty() });
+				return;
+			}
 		}
 
 		if (this.selectionModeConfig.get() === ISCMRepositorySelectionMode.Multiple || !this._repositories.find(r => r.selectionIndex !== -1)) {
@@ -573,9 +584,20 @@ export class SCMViewService implements ISCMViewService {
 
 		const all = this.repositories.map(r => getProviderStorageKey(r.provider));
 		const visible = this.visibleRepositories.map(r => all.indexOf(getProviderStorageKey(r.provider)));
-		this.previousState = { all, visible, sortKey: this._repositoriesSortKey } satisfies ISCMViewServiceState;
+		const state = { all, visible, sortKey: this._repositoriesSortKey } satisfies ISCMViewServiceState;
+
+		this.storageService.store('scm:view:visibleRepositories', JSON.stringify(state), StorageScope.WORKSPACE, StorageTarget.MACHINE);
+
+		// Remember the previous visibility of repositories that have not been
+		// discovered yet (ex: submodules) so that it is used when they are added
+		const previousState = this.previousState;
+		const undiscovered = previousState?.all.filter(key => !all.includes(key)) ?? [];
 
-		this.storageService.store('scm:view:visibleRepositories', JSON.stringify(this.previousState), StorageScope.WORKSPACE, StorageTarget.MACHINE);
+		this.previousState = previousState && undiscovered.length > 0 ? {
+			...state,
+			all: [...all, ...undiscovered],
+			visible: [...visible, ...undiscovered.flatMap((key, index) => previousState.visible.includes(previousState.all.indexOf(key)) ? [all.length + index] : [])]
+		} : state;
 	}
 
 	@debounce(5000)
diff --git a/src/vs/workbench/contrib/scm/test/browser/scmViewService.test.ts b/src/vs/workbench/contrib/scm/test/browser/scmViewService.test.ts
new file mode 100644
index 00000000000000..69ddee6caa7650
--- /dev/null
+++ b/src/vs/workbench/contrib/scm/test/browser/scmViewService.test.ts
@@ -0,0 +1,92 @@
+/*---------------------------------------------------------------------------------------------
+ *  Copyright (c) Microsoft Corporation. All rights reserved.
+ *  Licensed under the MIT License. See License.txt in the project root for license information.
+ *--------------------------------------------------------------------------------------------*/
+
+import * as assert from 'assert';
+import { timeout } from '../../../../../base/common/async.js';
+import { Emitter, Event } from '../../../../../base/common/event.js';
+import { URI } from '../../../../../base/common/uri.js';
+import { mock } from '../../../../../base/test/common/mock.js';
+import { ensureNoDisposablesAreLeakedInTestSuite } from '../../../../../base/test/common/utils.js';
+import { runWithFakedTimers } from '../../../../../base/test/common/virtualScheduling/runWithFakedTimers.js';
+import { TestConfigurationService } from '../../../../../platform/configuration/test/common/testConfigurationService.js';
+import { IInstantiationService } from '../../../../../platform/instantiation/common/instantiation.js';
+import { MockContextKeyService } from '../../../../../platform/keybinding/test/common/mockKeybindingService.js';
+import { StorageScope, StorageTarget, WillSaveStateReason } from '../../../../../platform/storage/common/storage.js';
+import { IWorkspaceContextService } from '../../../../../platform/workspace/common/workspace.js';
+import { IEditorService } from '../../../../services/editor/common/editorService.js';
+import { IExtensionService } from '../../../../services/extensions/common/extensions.js';
+import { TestStorageService } from '../../../../test/common/workbenchTestServices.js';
+import { SCMViewService } from '../../browser/scmViewService.js';
+import { ISCMProvider, ISCMRepository, ISCMService } from '../../common/scm.js';
+
+suite('SCMViewService', () => {
+	const disposables = ensureNoDisposablesAreLeakedInTestSuite();
+
+	function createRepository(id: string): ISCMRepository {
+		const provider = new class extends mock<ISCMProvider>() {
+			override readonly providerId = 'git';
+			override readonly label = 'Git';
+			override readonly rootUri = URI.file(`/${id}`);
+		}();
+
+		return new class extends mock<ISCMRepository>() {
+			override readonly id = id;
+			override readonly provider = provider;
+		}();
+	}
+
+	for (const flushStorage of [false, true]) {
+		test(`keeps a previously hidden repository hidden when it is added after loading finished${flushStorage ? ' and storage was flushed' : ''}`, () => runWithFakedTimers({}, async () => {
+			const onDidAddRepository = disposables.add(new Emitter<ISCMRepository>());
+			const scmService = new class extends mock<ISCMService>() {
+				override readonly onDidAddRepository = onDidAddRepository.event;
+				override readonly onDidRemoveRepository = Event.None;
+				override readonly repositories = [];
+			}();
+
+			const editorService = new class extends mock<IEditorService>() {
+				override readonly onDidActiveEditorChange = Event.None;
+			}();
+
+			const extensionService = new class extends mock<IExtensionService>() {
+				override readonly onWillStop = Event.None;
+			}();
+
+			const instantiationService = new class extends mock<IInstantiationService>() {
+				override createInstance = (() => ({})) as IInstantiationService['createInstance'];
+			}();
+
+			const parent = createRepository('parent');
+			const submodule = createRepository('parent/submodule');
+			const newRepository = createRepository('new');
+
+			const storageService = disposables.add(new TestStorageService());
+			storageService.store('scm:view:visibleRepositories', JSON.stringify({
+				all: [parent, submodule].map(r => `git:Git:${r.provider.rootUri!.toString()}`),
+				visible: [0],
+				sortKey: 'discoveryTime'
+			}), StorageScope.WORKSPACE, StorageTarget.MACHINE);
+
+			const scmViewService = new SCMViewService(scmService, new MockContextKeyService(), editorService, extensionService, instantiationService,
+				new TestConfigurationService({ scm: { repositories: { selectionMode: 'multiple' } } }), storageService, new (mock<IWorkspaceContextService>())());
+
+			onDidAddRepository.fire(parent);
+
+			// Repositories finish loading 5s after the last repository was added
+			await timeout(5000);
+
+			if (flushStorage) {
+				storageService.testEmitWillSaveState(WillSaveStateReason.NONE);
+			}
+
+			onDidAddRepository.fire(submodule);
+			onDidAddRepository.fire(newRepository);
+
+			assert.deepStrictEqual(scmViewService.visibleRepositories.map(r => r.id), ['parent', 'new']);
+
+			scmViewService.dispose();
+		}));
+	}
+});