Index: src/main/java/org/apache/karaf/features/internal/FeaturesServiceImpl.java
===================================================================
--- src/main/java/org/apache/karaf/features/internal/FeaturesServiceImpl.java	(revision 1306249)
+++ src/main/java/org/apache/karaf/features/internal/FeaturesServiceImpl.java	(working copy)
@@ -50,6 +50,7 @@
 import java.util.concurrent.CountDownLatch;
 import java.util.concurrent.TimeUnit;
 import java.util.concurrent.atomic.AtomicBoolean;
+import java.util.jar.JarFile;
 import java.util.jar.JarInputStream;
 import java.util.jar.Manifest;
 import java.util.regex.Matcher;
@@ -100,6 +101,7 @@
 
     public static final String CONFIG_KEY = "org.apache.karaf.features.configKey";
     public static String VERSION_PREFIX = "version=";
+    private static final String REFERENCE_PROTOCOL = "reference"; 
 
     private static final Logger LOGGER = LoggerFactory.getLogger(FeaturesServiceImpl.class);
 
@@ -680,25 +682,57 @@
     }
 
     protected Bundle installBundleIfNeeded(InstallationState state, BundleInfo bundleInfo, int defaultStartLevel, boolean verbose) throws IOException, BundleException {
-        InputStream is;
+        URL url;
+        Manifest m = null;
+        InputStream is = null;
         String bundleLocation = bundleInfo.getLocation();
         LOGGER.debug("Checking " + bundleLocation);
-        try {
-            is = new BufferedInputStream(new URL(bundleLocation).openStream());
+        try { 
+            url = new URL(bundleLocation);
+            String protocol = url.getProtocol();
+            if (REFERENCE_PROTOCOL.equals(protocol)) { 
+                URI uri = URI.create(url.getFile());
+                String scheme = uri.getScheme();
+                if ("file".equalsIgnoreCase(scheme)) {
+                    File reference = new File(uri);
+                    if (reference.isDirectory()) {
+                        File file = new File(reference, JarFile.MANIFEST_NAME);
+                        if (file.exists()) {
+                            InputStream inputStream = new FileInputStream(file);
+                            try {
+                                m = new Manifest(new BufferedInputStream(inputStream));
+                            } finally {
+                                inputStream.close();
+                            }
+                        }
+                    } else {
+                        JarFile jarFile = new JarFile(reference);
+                        m = jarFile.getManifest();
+                    }
+                } else {
+                    is = new BufferedInputStream(url.openStream());
+                }
+            } else {
+                is = new BufferedInputStream(url.openStream());
+            }
         } catch (RuntimeException e) {
-            LOGGER.error(e.getMessage());
+            LOGGER.error(bundleLocation + " - " + e.getMessage());
             throw e;
         }
         try {
-            is.mark(256 * 1024);
-            JarInputStream jar = new JarInputStream(is);
-            Manifest m = jar.getManifest();
-            if(m == null) {
-                throw new BundleException("Manifest not present in the first entry of the zip " + bundleLocation);
-            }
+            if (is != null) {
+                is.mark(256 * 1024);
+                JarInputStream jar = new JarInputStream(is);
+                m = jar.getManifest();
+                if(m == null) {
+                    throw new BundleException("Manifest not present in the first entry of the zip " + bundleLocation);
+                }
+            } else if (m == null) {
+                throw new BundleException("Manifest not present at location " + bundleLocation);
+            } 
             String sn = m.getMainAttributes().getValue(Constants.BUNDLE_SYMBOLICNAME);
             if (sn == null) {
-                throw new BundleException("Jar is not a bundle, no Bundle-SymbolicName " + bundleLocation);
+                throw new BundleException("Location does not point to a bundle, no Bundle-SymbolicName " + bundleLocation);
             }
             // remove attributes from the symbolic name (like ;blueprint.graceperiod:=false suffix)
             int attributeIndexSep = sn.indexOf(';');
@@ -721,11 +755,13 @@
                     }
                 }
             }
-            try {
-                is.reset();
-            } catch (IOException e) {
-                is.close();
-                is = new BufferedInputStream(new URL(bundleLocation).openStream());
+            if (is != null) {
+                try {
+                    is.reset();
+                } catch (IOException e) {
+                    is.close();
+                    is = new BufferedInputStream(url.openStream());
+                }
             }
             LOGGER.debug("Installing bundle " + bundleLocation);
             if (verbose) {
@@ -745,7 +781,9 @@
             state.installed.add(b);
             return b;
         } finally {
-            is.close();
+            if (is != null) {
+                is.close();
+            }
         }
     }