diff --git a/cmd/tools/vpm/parse.v b/cmd/tools/vpm/parse.v
index f8063efa6638bb..873744d3605023 100644
--- a/cmd/tools/vpm/parse.v
+++ b/cmd/tools/vpm/parse.v
@@ -4,7 +4,14 @@ import os
 import net.http
 import v.vmod
 
-struct Module {
+struct Parser {
+mut:
+	modules              map[string]Module
+	checked_settings_vcs bool
+	errors               int
+}
+
+pub struct Module {
 mut:
 	name               string
 	url                string
@@ -19,11 +26,10 @@ mut:
 	manifest           vmod.Manifest
 }
 
-struct Parser {
-mut:
-	modules              map[string]Module
-	checked_settings_vcs bool
-	errors               int
+struct InstalledModule {
+	path      string
+	is_global bool
+	url       string
 }
 
 enum ModuleKind {
@@ -207,6 +213,106 @@ fn (mut m Module) get_installed() {
 	}
 }
 
+fn (mut p Parser) parse_outdated() {
+	for entry in os.ls(settings.vmodules_path) or { return } {
+		path := os.join_path(settings.vmodules_path, entry)
+		if entry in excluded_dirs || !os.is_dir(path) {
+			continue
+		}
+		// Global modules `vmodules_dir/module`.
+		if os.exists(os.join_path(path, 'v.mod')) {
+			if !is_outdated(path) {
+				continue
+			}
+			vcs := vcs_used_in_dir(path) or { continue }
+			args := vcs_info[vcs].args
+			// TODO: mercurial
+			url := os.execute_opt('${vcs.str()} ${args.path} ${path} config --get remote.origin.url') or {
+				vpm_error('failed to get url for `${entry}`.', details: err.msg())
+				continue
+			}.output.trim_space()
+			vpm_log(@FILE_LINE, @FN, 'url: ${url}')
+			if url.starts_with('https://github.com/vlang')
+				|| url.starts_with('git@github.com:vlang') {
+				p.parse_module(entry)
+			} else {
+				p.parse_module(url)
+			}
+			continue
+		}
+		// Modules under publisher namespace `vmodules_dir/publisher/module`.
+		for mod in os.ls(path) or { continue } {
+			mod_path := os.join_path(path, mod)
+			if os.exists(os.join_path(mod_path, 'v.mod')) && is_outdated(mod_path) {
+				p.parse_module('${entry}.${mod}')
+			}
+		}
+	}
+}
+
+fn (mut p Parser) parse_update_query(query []string) {
+	q_urls := query.filter(it.starts_with('https://') || it.starts_with('git@'))
+	mut installed := map[string]InstalledModule{}
+	for entry in os.ls(settings.vmodules_path) or { return } {
+		path := os.join_path(settings.vmodules_path, entry)
+		if entry in excluded_dirs || !os.is_dir(path) {
+			continue
+		}
+		// Global modules `vmodules_dir/module`.
+		if os.exists(os.join_path(path, 'v.mod')) {
+			vcs := vcs_used_in_dir(path) or { continue }
+			args := vcs_info[vcs].args
+			// TODO: mercurial
+			url := os.execute_opt('${vcs.str()} ${args.path} ${path} config --get remote.origin.url') or {
+				vpm_error('failed to get url for `${entry}`.', details: err.msg())
+				continue
+			}.output.trim_space()
+			vpm_log(@FILE_LINE, @FN, 'url: ${url}')
+			mod := InstalledModule{
+				path: path
+				is_global: true
+				url: if url.starts_with('https://github.com/vlang')
+					|| url.starts_with('git@github.com:vlang') {
+					''
+				} else {
+					url
+				}
+			}
+			if url in q_urls {
+				installed[url] = mod
+			} else {
+				installed[entry] = mod
+			}
+			continue
+		}
+		// Modules under a publisher namespace `vmodules_dir/publisher/module`.
+		for mod in os.ls(path) or { continue } {
+			mod_path := os.join_path(path, mod)
+			if os.exists(os.join_path(mod_path, 'v.mod')) {
+				installed['${entry}.${mod}'] = InstalledModule{
+					path: mod_path
+				}
+			}
+		}
+	}
+	for m in query {
+		if m !in installed {
+			vpm_error('failed to update `${m}`. Not installed.')
+			p.errors++
+			continue
+		}
+		if !is_outdated(installed[m].path) {
+			verbose_println('Skipping `${m}`. Already up to date.')
+			continue
+		}
+		if installed[m].is_global && installed[m].url != '' {
+			p.parse_module(installed[m].url)
+		} else {
+			p.parse_module(m)
+		}
+	}
+}
+
 fn get_tmp_path(relative_path string) !string {
 	tmp_path := os.real_path(os.join_path(settings.tmp_path, relative_path))
 	if os.exists(tmp_path) {
diff --git a/cmd/tools/vpm/update.v b/cmd/tools/vpm/update.v
index 6da8bebf214f82..5ca91c619b534f 100644
--- a/cmd/tools/vpm/update.v
+++ b/cmd/tools/vpm/update.v
@@ -4,10 +4,6 @@ import os
 import sync.pool
 import v.help
 
-struct UpdateSession {
-	idents []string
-}
-
 pub struct UpdateResult {
 mut:
 	success bool
@@ -17,61 +13,60 @@ fn vpm_update(query []string) {
 	if settings.is_help {
 		help.print_and_exit('update')
 	}
-	idents := if query.len == 0 {
-		get_installed_modules()
+	mut p := Parser{}
+	if query.len == 0 {
+		p.parse_outdated()
 	} else {
-		query.clone()
+		p.parse_update_query(query)
+	}
+	// In case dependencies have changed, new modules may need to be installed.
+	mut to_update, mut to_install := []Module{}, []Module{}
+	for m in p.modules.values() {
+		if m.is_installed {
+			to_update << m
+		} else {
+			to_install << m
+		}
 	}
+	if to_update.len == 0 {
+		if p.errors > 0 {
+			exit(1)
+		} else {
+			println('All modules are up to date.')
+			exit(0)
+		}
+	}
+	vpm_log(@FILE_LINE, @FN, 'Modules to update: ${to_update}')
+	vpm_log(@FILE_LINE, @FN, 'Modules to install: ${to_install}')
 	mut pp := pool.new_pool_processor(callback: update_module)
-	ctx := UpdateSession{idents}
-	pp.set_shared_context(ctx)
-	pp.work_on_items(idents)
+	pp.work_on_items(to_update)
 	mut errors := 0
 	for res in pp.get_results[UpdateResult]() {
 		if !res.success {
 			errors++
-			continue
 		}
 	}
-	if errors > 0 {
+	if to_install.len != 0 {
+		install_modules(to_install)
+	}
+	if p.errors > 0 || errors > 0 {
 		exit(1)
 	}
 }
 
 fn update_module(mut pp pool.PoolProcessor, idx int, wid int) &UpdateResult {
-	ident := pp.get_item[string](idx)
-	// Usually, the module `ident`ifier. `get_name_from_url` is only relevant for `v update <module_url>`.
-	name := get_name_from_url(ident) or { ident }
-	install_path := get_path_of_existing_module(ident) or {
-		vpm_error('failed to find path for `${name}`.', verbose: true)
-		return &UpdateResult{}
-	}
-	vcs := vcs_used_in_dir(install_path) or {
-		vpm_error('failed to find version control system for `${name}`.', verbose: true)
-		return &UpdateResult{}
-	}
-	vcs.is_executable() or {
-		vpm_error(err.msg())
-		return &UpdateResult{}
-	}
+	m := pp.get_item[Module](idx)
+	vcs := m.vcs or { settings.vcs }
 	args := vcs_info[vcs].args
-	cmd := [vcs.str(), args.path, os.quoted_path(install_path), args.update].join(' ')
-	vpm_log(@FILE_LINE, @FN, 'cmd: ${cmd}')
-	println('Updating module `${name}` in `${fmt_mod_path(install_path)}`...')
+	cmd := [vcs.str(), args.path, os.quoted_path(m.install_path), args.update].join(' ')
+	vpm_log(@FILE_LINE, @FN, '> cmd: ${cmd}')
+	println('Updating module `${m.name}` in `${fmt_mod_path(m.install_path)}`...')
 	res := os.execute_opt(cmd) or {
-		vpm_error('failed to update module `${name}` in `${install_path}`.', details: err.msg())
+		vpm_error('failed to update module `${m.name}` in `${m.install_path}`.', details: err.msg())
 		return &UpdateResult{}
 	}
-	vpm_log(@FILE_LINE, @FN, 'cmd output: ${res.output.trim_space()}')
-	if res.output.contains('Already up to date.') {
-		println('Skipped module `${ident}`. Already up to date.')
-	} else {
-		println('Updated module `${ident}`.')
-	}
+	vpm_log(@FILE_LINE, @FN, '>> output: ${res.output.trim_space()}')
 	// Don't bail if the download count increment has failed.
-	increment_module_download_count(name) or { vpm_error(err.msg(), verbose: true) }
-	ctx := unsafe { &UpdateSession(pp.get_shared_context()) }
-	vpm_log(@FILE_LINE, @FN, 'ident: ${ident}; ctx: ${ctx}')
-	resolve_dependencies(get_manifest(install_path), ctx.idents)
+	increment_module_download_count(m.name) or { vpm_error(err.msg(), verbose: true) }
 	return &UpdateResult{true}
 }
diff --git a/cmd/tools/vpm/update_test.v b/cmd/tools/vpm/update_test.v
index 528c83debabfcf..94a4e11c77952f 100644
--- a/cmd/tools/vpm/update_test.v
+++ b/cmd/tools/vpm/update_test.v
@@ -1,4 +1,6 @@
 // vtest retry: 3
+module main
+
 import os
 import rand
 import test_utils
@@ -18,39 +20,75 @@ fn testsuite_end() {
 	os.rmdir_all(test_path) or {}
 }
 
-// Tests if `v update` detects installed modules and runs successfully.
 fn test_update() {
-	os.execute_or_exit('${v} install pcre')
-	os.execute_or_exit('${v} install nedpals.args')
-	os.execute_or_exit('${v} install https://github.com/spytheman/vtray')
+	for m in ['pcre', 'https://github.com/spytheman/vtray', 'nedpals.args', 'ttytm.webview'] {
+		os.execute_or_exit('${v} install ${m}')
+	}
+	// "outdate" some modules, by removing their last commit.
+	for m in ['pcre', 'vtray', os.join_path('nedpals', 'args')] {
+		path := os.join_path(test_path, m)
+		os.execute_or_exit('git -C ${path} fetch --unshallow')
+		os.execute_or_exit('git -C ${path} reset --hard HEAD~')
+		assert is_outdated(path)
+	}
+	// Case: Run `v update` (without args).
 	res := os.execute('${v} update')
 	assert res.exit_code == 0, res.str()
 	assert res.output.contains('Updating module `pcre`'), res.output
-	assert res.output.contains('Updating module `nedpals.args`'), res.output
 	assert res.output.contains('Updating module `vtray`'), res.output
-	assert res.output.contains('Skipping download count increment for `nedpals.args`.'), res.output
+	assert res.output.contains('Updating module `nedpals.args`'), res.output
 	assert res.output.contains('Skipping download count increment for `pcre`.'), res.output
+	assert res.output.contains('Skipping download count increment for `nedpals.args`.'), res.output
+	assert !res.output.contains('Updating module `ttytm.webview`'), res.output
+	assert !res.output.contains('Skipping download count increment for `ttytm.webview`.'), res.output
+	for m in ['pcre', 'vtray', os.join_path('nedpals', 'args')] {
+		assert !is_outdated(os.join_path(test_path, m))
+	}
 }
 
-fn test_update_idents() {
-	mut res := os.execute('${v} update pcre')
+fn test_update_short_ident() {
+	os.execute_or_exit('git -C ${os.join_path(test_path, 'pcre')} reset --hard HEAD~')
+	res := os.execute('${v} update pcre')
 	assert res.exit_code == 0, res.str()
 	assert res.output.contains('Updating module `pcre`'), res.output
-	res = os.execute('${v} update nedpals.args vtray')
+}
+
+fn test_update_ident() {
+	os.execute_or_exit('git -C ${os.join_path(test_path, 'nedpals', 'args')} reset --hard HEAD~')
+	res := os.execute('${v} update nedpals.args')
 	assert res.exit_code == 0, res.str()
-	assert res.output.contains('Updating module `vtray`'), res.output
 	assert res.output.contains('Updating module `nedpals.args`'), res.output
-	// Update installed module using its url.
-	res = os.execute('${v} update https://github.com/spytheman/vtray')
+}
+
+fn test_update_url() {
+	os.execute_or_exit('git -C ${os.join_path(test_path, 'vtray')} reset --hard HEAD~')
+	res := os.execute('${v} update https://github.com/spytheman/vtray')
+	assert res.exit_code == 0, res.str()
+	assert res.output.contains('Updating module `vtray`'), res.output
+}
+
+fn test_update_multi_ident() {
+	os.execute_or_exit('git -C ${os.join_path(test_path, 'nedpals', 'args')} reset --hard HEAD~')
+	os.execute_or_exit('git -C ${os.join_path(test_path, 'vtray')} reset --hard HEAD~')
+	res := os.execute('${v} update nedpals.args vtray')
 	assert res.exit_code == 0, res.str()
+	assert res.output.contains('Updating module `nedpals.args`'), res.output
 	assert res.output.contains('Updating module `vtray`'), res.output
-	// Try update not installed.
-	res = os.execute('${v} update vsl')
+}
+
+fn test_update_not_installed() {
+	res := os.execute('${v} update vsl')
 	assert res.exit_code == 1, res.str()
-	assert res.output.contains('failed to find `vsl`'), res.output
-	// Try update mixed.
-	res = os.execute('${v} update pcre vsl')
+	assert res.output.contains('failed to update `vsl`. Not installed.'), res.output
+}
+
+fn test_update_mixed_installed_not_installed() {
+	os.execute_or_exit('git -C ${os.join_path(test_path, 'pcre')} reset --hard HEAD~')
+	res := os.execute('${v} update pcre vsl')
 	assert res.exit_code == 1, res.str()
 	assert res.output.contains('Updating module `pcre`'), res.output
-	assert res.output.contains('failed to find `vsl`'), res.output
+	assert res.output.contains('failed to update `vsl`. Not installed.'), res.output
 }
+
+// TODO: hg tests
+// TODO: recursive test