diff --git a/packages/cli/generators/relation/index.js b/packages/cli/generators/relation/index.js
index 0c7cb5703e50..25f140721943 100644
--- a/packages/cli/generators/relation/index.js
+++ b/packages/cli/generators/relation/index.js
@@ -230,6 +230,26 @@ module.exports = class RelationGenerator extends ArtifactGenerator {
       /* istanbul ignore next */
       return this.exit(err);
     }
+    // Check if modelDir contains subdirectories
+    const subdirectories = await utils.getSubdirectories(
+      this.artifactInfo.modelDir,
+    );
+    // If subdirectories exist, retrieve models from them
+    if (subdirectories.length > 0) {
+      for (const subdirectory of subdirectories) {
+        try {
+          const subdirectoryModelList = await utils.getArtifactList(
+            subdirectory,
+            'model',
+          );
+          modelList = modelList.concat(subdirectoryModelList);
+        } catch (err) {
+          console.error(
+            `Error retrieving models from subdirectory ${subdirectory}: ${err}`,
+          );
+        }
+      }
+    }
     let repoList;
     try {
       debug(`repository list dir ${this.artifactInfo.repoDir}`);
diff --git a/packages/cli/generators/repository/index.js b/packages/cli/generators/repository/index.js
index 6a0619f59021..0a864f81f6b0 100644
--- a/packages/cli/generators/repository/index.js
+++ b/packages/cli/generators/repository/index.js
@@ -101,14 +101,48 @@ module.exports = class RepositoryGenerator extends ArtifactGenerator {
       this.artifactInfo.modelDir,
       utils.getModelFileName(modelName),
     );
-    try {
-      fileContent = this.fs.read(modelFile, {});
-    } catch (err) {
-      debug(`${ERROR_READING_FILE} ${modelFile}: ${err.message}`);
-      return this.exit(err);
+
+    // Check if the model file exists directly in the modelDir
+    if (fs.existsSync(modelFile)) {
+      try {
+        fileContent = this.fs.read(modelFile, {});
+      } catch (err) {
+        debug(`${ERROR_READING_FILE} ${modelFile}: ${err.message}`);
+        return this.exit(err);
+      }
+
+      return tsquery.getIdFromModel(fileContent);
     }
 
-    return tsquery.getIdFromModel(fileContent);
+    // If the model file is not found directly, search in subdirectories
+    const subdirectories = await utils.getSubdirectories(
+      this.artifactInfo.modelDir,
+    );
+
+    for (const subdirectory of subdirectories) {
+      const subdirectoryModelFile = path.join(
+        subdirectory,
+        utils.getModelFileName(modelName),
+      );
+
+      if (fs.existsSync(subdirectoryModelFile)) {
+        try {
+          fileContent = this.fs.read(subdirectoryModelFile, {});
+        } catch (err) {
+          debug(
+            `${ERROR_READING_FILE} ${subdirectoryModelFile}: ${err.message}`,
+          );
+          return this.exit(err);
+        }
+
+        return tsquery.getIdFromModel(fileContent);
+      }
+    }
+
+    // If the model file is not found in any subdirectory, return an error
+    return this.exit(
+      new Error(`Model ${modelName} not found in any subdirectory.`),
+    );
   }
 
   /**
@@ -330,6 +364,34 @@ module.exports = class RepositoryGenerator extends ArtifactGenerator {
       return this.exit(err);
     }
 
+    // Check if modelDir contains subdirectories
+    const subdirectories = await utils.getSubdirectories(
+      this.artifactInfo.modelDir,
+    );
+    // If subdirectories exist, retrieve models from them
+    if (subdirectories.length > 0) {
+      for (const subdirectory of subdirectories) {
+        try {
+          const subdirectoryModelList = await utils.getArtifactList(
+            subdirectory,
+            'model',
+          );
+          const subdir = subdirectory.split('models')[1];
+          if (!this.artifactInfo.modelSubDirs) {
+            this.artifactInfo.modelSubDirs = {};
+          }
+          subdirectoryModelList.forEach(model => {
+            this.artifactInfo.modelSubDirs[model] = subdir;
+          });
+          modelList = modelList.concat(subdirectoryModelList);
+        } catch (err) {
+          console.error(
+            `Error retrieving models from subdirectory ${subdirectory}: ${err}`,
+          );
+        }
+      }
+    }
+
     if (this.options.model) {
       debug(`Model name received from command line: ${this.options.model}`);
 
@@ -529,6 +591,15 @@ module.exports = class RepositoryGenerator extends ArtifactGenerator {
         this.artifactInfo.modelName,
       );
 
+      const outFile = `${
+        this.artifactInfo.modelSubDirs[
+          this.artifactInfo.modelName || this.artifactInfo.name
+        ]
+      }/${this.artifactInfo.outFile}`;
+      if (!outFile.includes('undefined')) {
+        this.artifactInfo.outFile = outFile.slice(1, outFile.length);
+      }
+
       this.artifactInfo.indexesToBeUpdated.push({
         dir: this.artifactInfo.outDir,
         file: this.artifactInfo.outFile,
diff --git a/packages/cli/generators/repository/templates/src/repositories/repository-crud-default-template.ts.ejs b/packages/cli/generators/repository/templates/src/repositories/repository-crud-default-template.ts.ejs
index b150d57bb050..f3b6932e8154 100644
--- a/packages/cli/generators/repository/templates/src/repositories/repository-crud-default-template.ts.ejs
+++ b/packages/cli/generators/repository/templates/src/repositories/repository-crud-default-template.ts.ejs
@@ -2,8 +2,16 @@ import {inject} from '@loopback/core';
 <%if (isRepositoryBaseBuiltin) {  -%>
 import {<%= repositoryTypeClass %>} from '@loopback/repository';
 <% } -%>
-import {<%= dataSourceClassName %>} from '../datasources';
-import {<%= modelName %>, <%= modelName %>Relations} from '../models';
+<%if (modelSubDirs[modelName]) {  -%>
+  import {<%= dataSourceClassName %>} from '../../datasources';
+  import {<%= modelName %>, <%= modelName %>Relations} from '../../models';
+<% } -%>
+
+<%if (!modelSubDirs[modelName]) {  -%>
+  import {<%= dataSourceClassName %>} from '../datasources';
+  import {<%= modelName %>, <%= modelName %>Relations} from '../models';
+<% } -%>
+
 <%if ( !isRepositoryBaseBuiltin ) { -%>
 import {<%=repositoryBaseClass %>} from './<%=repositoryBaseFile %>';
 <% } -%>
diff --git a/packages/cli/lib/utils.js b/packages/cli/lib/utils.js
index 8ce58b2f2d69..a9512dd70a57 100644
--- a/packages/cli/lib/utils.js
+++ b/packages/cli/lib/utils.js
@@ -6,6 +6,7 @@
 'use strict';
 
 const fs = require('node:fs');
+const fsp = require('fs/promises');
 const path = require('node:path');
 const util = require('node:util');
 const stream = require('node:stream');
@@ -383,6 +384,21 @@ exports.getArtifactList = async function (
   });
 };
 
+/**
+ * Retrieves a list of subdirectories within a given directory.
+ *
+ * @param {string} dir The directory path to search for subdirectories.
+ */
+exports.getSubdirectories = async function (dir) {
+  const entries = await fsp.readdir(dir, {withFileTypes: true});
+
+  const subdirectories = entries
+    .filter(entry => entry.isDirectory())
+    .map(entry => path.join(dir, entry.name));
+
+  return subdirectories;
+};
+
 /**
  * Check package.json and dependencies.json to find out versions for generated
  * dependencies