diff --git a/doc/04-schema.md b/doc/04-schema.md
index f08290ace..a222c06e0 100644
--- a/doc/04-schema.md
+++ b/doc/04-schema.md
@@ -581,8 +581,9 @@ The following options are supported:
   higher if you have a slow connection or huge vendors.
 * **use-include-path:** Defaults to `false`. If true, the Composer autoloader
   will also look for classes in the PHP include path.
-* **prefer-source:** Defaults to `false`. If true, Composer will always prefer
-  source installs.
+* **preferred-install:** Defaults to `auto` and can be any of `source`, `dist` or
+  `auto`. This option allows you to set the install method Composer will prefer to
+  use.
 * **github-protocols:** Defaults to `["git", "https", "http"]`. A list of
   protocols to use for github.com clones, in priority order. Use this if you are
   behind a proxy or have somehow bad performances with the git protocol.
diff --git a/res/composer-schema.json b/res/composer-schema.json
index d6a658e5d..aefaa0463 100644
--- a/res/composer-schema.json
+++ b/res/composer-schema.json
@@ -116,9 +116,9 @@
                     "type": "boolean",
                     "description": "If true, the Composer autoloader will also look for classes in the PHP include path."
                 },
-                "prefer-source": {
-                    "type": "boolean",
-                    "description": "If true, Composer will always prefer source installs."
+                "preferred-install": {
+                    "type": "string",
+                    "description": "The install method Composer will prefer to use, defaults to auto and can be any of source, dist or auto."
                 },
                 "notify-on-install": {
                     "type": "boolean",
diff --git a/src/Composer/Command/ConfigCommand.php b/src/Composer/Command/ConfigCommand.php
index 3025742bc..f447a70ba 100644
--- a/src/Composer/Command/ConfigCommand.php
+++ b/src/Composer/Command/ConfigCommand.php
@@ -258,9 +258,9 @@ EOT
                 $booleanValidator,
                 $booleanNormalizer
             ),
-            'prefer-source' => array(
-                $booleanValidator,
-                $booleanNormalizer
+            'preferred-install' => array(
+                function ($val) { return in_array($val, array('auto', 'source', 'dist'), true); },
+                function ($val) { return $val; }
             ),
             'notify-on-install' => array(
                 $booleanValidator,
diff --git a/src/Composer/Command/InstallCommand.php b/src/Composer/Command/InstallCommand.php
index 7bcda88ab..5be76257b 100644
--- a/src/Composer/Command/InstallCommand.php
+++ b/src/Composer/Command/InstallCommand.php
@@ -61,11 +61,30 @@ EOT
         $io = $this->getIO();
         $install = Installer::create($io, $composer);
 
+        $preferSource = false;
+        $preferDist = false;
+        switch ($composer->getConfig()->get('preferred-install')) {
+            case 'source':
+                $preferSource = true;
+                break;
+            case 'dist':
+                $preferDist = true;
+                break;
+            case 'auto':
+            default:
+                // noop
+                break;
+        }
+        if ($input->getOption('prefer-source') || $input->getOption('prefer-dist')) {
+            $preferSource = $input->getOption('prefer-source');
+            $preferDist = $input->getOption('prefer-dist');
+        }
+
         $install
             ->setDryRun($input->getOption('dry-run'))
             ->setVerbose($input->getOption('verbose'))
-            ->setPreferSource($input->getOption('prefer-source') || $composer->getConfig()->get('prefer-source'))
-            ->setPreferDist($input->getOption('prefer-dist'))
+            ->setPreferSource($preferSource)
+            ->setPreferDist($preferDist)
             ->setDevMode($input->getOption('dev'))
             ->setRunScripts(!$input->getOption('no-scripts'))
             ->setOptimizeAutoloader($input->getOption('optimize-autoloader'))
diff --git a/src/Composer/Command/UpdateCommand.php b/src/Composer/Command/UpdateCommand.php
index 6515bbb83..7c75fb4db 100644
--- a/src/Composer/Command/UpdateCommand.php
+++ b/src/Composer/Command/UpdateCommand.php
@@ -64,11 +64,30 @@ EOT
         $io = $this->getIO();
         $install = Installer::create($io, $composer);
 
+        $preferSource = false;
+        $preferDist = false;
+        switch ($composer->getConfig()->get('preferred-install')) {
+            case 'source':
+                $preferSource = true;
+                break;
+            case 'dist':
+                $preferDist = true;
+                break;
+            case 'auto':
+            default:
+                // noop
+                break;
+        }
+        if ($input->getOption('prefer-source') || $input->getOption('prefer-dist')) {
+            $preferSource = $input->getOption('prefer-source');
+            $preferDist = $input->getOption('prefer-dist');
+        }
+
         $install
             ->setDryRun($input->getOption('dry-run'))
             ->setVerbose($input->getOption('verbose'))
-            ->setPreferSource($input->getOption('prefer-source') || $composer->getConfig()->get('prefer-source'))
-            ->setPreferDist($input->getOption('prefer-dist'))
+            ->setPreferSource($preferSource)
+            ->setPreferDist($preferDist)
             ->setDevMode(!$input->getOption('no-dev'))
             ->setRunScripts(!$input->getOption('no-scripts'))
             ->setOptimizeAutoloader($input->getOption('optimize-autoloader'))
diff --git a/src/Composer/Config.php b/src/Composer/Config.php
index ce79508ed..54d3961ac 100644
--- a/src/Composer/Config.php
+++ b/src/Composer/Config.php
@@ -22,7 +22,7 @@ class Config
     public static $defaultConfig = array(
         'process-timeout' => 300,
         'use-include-path' => false,
-        'prefer-source' => false,
+        'preferred-install' => 'auto',
         'notify-on-install' => true,
         'github-protocols' => array('git', 'https', 'http'),
         'vendor-dir' => 'vendor',