diff --git a/framework/src/play/templates/GroovyTemplate.java b/framework/src/play/templates/GroovyTemplate.java
index 0b4a954a91..1ddb72afa8 100644
--- a/framework/src/play/templates/GroovyTemplate.java
+++ b/framework/src/play/templates/GroovyTemplate.java
@@ -264,7 +264,19 @@ protected String internalRender(Map<String, Object> args) {
             layoutArgs.remove("out");
             layoutArgs.put("_isLayout", true);
             String layoutR = layout.get().internalRender(layoutArgs);
-            return layoutR.replace("____%LAYOUT%____", writer.toString().trim());
+
+            // Must replace '____%LAYOUT%____' inside the string layoutR with the content from writer..
+            final String whatToFind = "____%LAYOUT%____";
+            final int pos = layoutR.indexOf(whatToFind);
+            if (pos >=0) {
+                // prepending and appending directly to writer/buffer to prevent us
+                // from having to duplicate the string.
+                // this makes us use half of the memory!
+                writer.getBuffer().insert(0,layoutR.substring(0,pos));
+                writer.append(layoutR.substring(pos+whatToFind.length()));
+                return writer.toString().trim();
+            }
+            return layoutR;
         }
         if (writer != null) {
             return writer.toString();