diff --git a/plugins/gradle/src/org/jetbrains/plugins/gradle/service/project/GradleExecutionHelper.java b/plugins/gradle/src/org/jetbrains/plugins/gradle/service/project/GradleExecutionHelper.java
index f5ad42622f87..6990a34e0270 100644
--- a/plugins/gradle/src/org/jetbrains/plugins/gradle/service/project/GradleExecutionHelper.java
+++ b/plugins/gradle/src/org/jetbrains/plugins/gradle/service/project/GradleExecutionHelper.java
@@ -29,6 +29,9 @@ import com.intellij.openapi.util.text.StringUtil;
 import com.intellij.util.*;
 import com.intellij.util.containers.ContainerUtil;
 import com.intellij.util.containers.ContainerUtilRt;
+import org.gradle.initialization.BuildLayoutParameters;
+import org.gradle.internal.nativeintegration.services.NativeServices;
+import org.gradle.process.internal.JvmOptions;
 import org.gradle.tooling.*;
 import org.gradle.tooling.internal.consumer.DefaultExecutorServiceFactory;
 import org.gradle.tooling.internal.consumer.DefaultGradleConnector;
@@ -49,6 +52,7 @@ import java.io.IOException;
 import java.io.InputStream;
 import java.io.OutputStream;
 import java.lang.reflect.Field;
+import java.util.Collection;
 import java.util.Iterator;
 import java.util.List;
 import java.util.Set;
@@ -132,8 +136,14 @@ public class GradleExecutionHelper {
     jvmArgs.addAll(extraJvmArgs);
 
     if (!jvmArgs.isEmpty()) {
+      // merge gradle args e.g. defined in gradle.properties
+      BuildEnvironment buildEnvironment = getBuildEnvironment(connection);
+      Collection<String> merged = buildEnvironment != null
+                                  ? mergeJvmArgs(settings.getServiceDirectory(), buildEnvironment.getJava().getJvmArguments(), jvmArgs)
+                                  : jvmArgs;
+
       // filter nulls and empty strings
-      List<String> filteredArgs = ContainerUtil.mapNotNull(jvmArgs, new Function<String, String>() {
+      List<String> filteredArgs = ContainerUtil.mapNotNull(merged, new Function<String, String>() {
         @Override
         public String fun(String s) {
           return StringUtil.isEmpty(s) ? null : s;
@@ -284,6 +294,15 @@ public class GradleExecutionHelper {
     }
   }
 
+  private static List<String> mergeJvmArgs(String serviceDirectory, Iterable<String> jvmArgs1, Iterable<String> jvmArgs2) {
+    File gradleUserHomeDir = serviceDirectory != null ? new File(serviceDirectory) : new BuildLayoutParameters().getGradleUserHomeDir();
+    LOG.debug("Gradle home: " + gradleUserHomeDir);
+    NativeServices.initialize(gradleUserHomeDir, false);
+    JvmOptions jvmOptions = new JvmOptions(null);
+    jvmOptions.setAllJvmArgs(ContainerUtil.concat(jvmArgs1, jvmArgs2));
+    return jvmOptions.getAllJvmArgs();
+  }
+
   /**
    * Allows to retrieve gradle api connection to use for the given project.
    *
diff --git a/plugins/gradle/src/org/jetbrains/plugins/gradle/service/settings/IdeaGradleSystemSettingsControlBuilder.java b/plugins/gradle/src/org/jetbrains/plugins/gradle/service/settings/IdeaGradleSystemSettingsControlBuilder.java
index ebffcc340d8a..63ce50b2da04 100644
--- a/plugins/gradle/src/org/jetbrains/plugins/gradle/service/settings/IdeaGradleSystemSettingsControlBuilder.java
+++ b/plugins/gradle/src/org/jetbrains/plugins/gradle/service/settings/IdeaGradleSystemSettingsControlBuilder.java
@@ -23,15 +23,16 @@ import com.intellij.openapi.fileChooser.FileChooserDescriptor;
 import com.intellij.openapi.ui.TextComponentAccessor;
 import com.intellij.openapi.ui.TextFieldWithBrowseButton;
 import com.intellij.openapi.util.Comparing;
+import com.intellij.openapi.util.io.FileUtil;
 import com.intellij.openapi.util.text.StringUtil;
 import com.intellij.ui.components.JBCheckBox;
 import com.intellij.ui.components.JBLabel;
 import com.intellij.ui.components.JBTextField;
+import org.gradle.initialization.BuildLayoutParameters;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
 import org.jetbrains.plugins.gradle.settings.GradleSettings;
 import org.jetbrains.plugins.gradle.util.GradleBundle;
-import org.jetbrains.plugins.gradle.util.GradleConstants;
 
 import javax.swing.event.DocumentEvent;
 import javax.swing.event.DocumentListener;
@@ -214,11 +215,8 @@ public class IdeaGradleSystemSettingsControlBuilder implements GradleSystemSetti
   }
 
   private static void deduceServiceDirectory(@NotNull TextFieldWithBrowseButton serviceDirectoryPathField) {
-    String path = System.getenv().get(GradleConstants.SYSTEM_DIRECTORY_PATH_KEY);
-    if (StringUtil.isEmpty(path)) {
-      path = new File(System.getProperty("user.home"), ".gradle").getAbsolutePath();
-    }
-    serviceDirectoryPathField.setText(path);
+    File gradleUserHomeDir = new BuildLayoutParameters().getGradleUserHomeDir();
+    serviceDirectoryPathField.setText(FileUtil.toSystemIndependentName(gradleUserHomeDir.getPath()));
     serviceDirectoryPathField.getTextField().setForeground(LocationSettingType.DEDUCED.getColor());
   }