diff --git a/src/services/transitive-resolver.ts b/src/services/transitive-resolver.ts
index 1251e82..5dab42f 100644
--- a/src/services/transitive-resolver.ts
+++ b/src/services/transitive-resolver.ts
@@ -18,6 +18,8 @@ import { getResourceDescriptorKey } from '../lib/resource-path.js';
  * Reference detection patterns for policy XML content.
  */
 const NAMED_VALUE_PATTERN = /\{\{([^}]+)\}\}/g;
+const POLICY_BOUNDARY_PATTERN = /<!--[\s\S]*?(?:-->|$)|<!\[CDATA\[[\s\S]*?(?:\]\]>|$)|<\/set-body\s*>|<set-body(?:\s+[\w:.-]+\s*=\s*(?:"[^"]*"|'[^']*'))*\s*\/?>/g;
+const ATTRIBUTE_PATTERN = /\s+([\w:.-]+)\s*=\s*(?:"([^"]*)"|'([^']*)')/g;
 const BACKEND_PATTERN = /<set-backend-service\s+backend-id="([^"]+)"/g;
 const FRAGMENT_PATTERN = /<include-fragment\s+fragment-id="([^"]+)"/g;
 
@@ -41,15 +43,44 @@ const POLICY_RESOURCE_TYPES = new Set<ResourceType>([
  * Scan policy XML content for references to other resources.
  *
  * Detects:
- * - Named values: {{namedValueName}} syntax
+ * - Named values: {{namedValueName}} syntax outside Liquid template bodies
  * - Backends: <set-backend-service backend-id="backendName">
  * - Policy fragments: <include-fragment fragment-id="fragmentName">
  */
 export function scanPolicyReferences(policyXml: string): TransitiveDependency[] {
   const dependencies: TransitiveDependency[] = [];
+  const namedValueParts: string[] = [];
+  let retainedStart = 0;
+  let liquidDepth = 0;
+
+  for (const boundary of policyXml.matchAll(POLICY_BOUNDARY_PATTERN)) {
+    const tag = boundary[0];
+    if (tag.startsWith('<!') || tag.endsWith('/>')) {
+      continue;
+    }
+    if (tag.startsWith('</')) {
+      if (liquidDepth > 0 && --liquidDepth === 0) {
+        retainedStart = boundary.index;
+      }
+    } else if (liquidDepth > 0) {
+      liquidDepth++;
+    } else {
+      for (const attribute of tag.matchAll(ATTRIBUTE_PATTERN)) {
+        if (attribute[1] === 'template' && (attribute[2] ?? attribute[3]) === 'liquid') {
+          const openingEnd = boundary.index + tag.length;
+          namedValueParts.push(policyXml.slice(retainedStart, openingEnd));
+          retainedStart = openingEnd;
+          liquidDepth = 1;
+          break;
+        }
+      }
+    }
+  }
+  namedValueParts.push(policyXml.slice(retainedStart));
+  const namedValueXml = namedValueParts.join('');
 
   // Named value references
-  for (const match of policyXml.matchAll(NAMED_VALUE_PATTERN)) {
+  for (const match of namedValueXml.matchAll(NAMED_VALUE_PATTERN)) {
     if (match[1]) {
       dependencies.push({
         type: ResourceType.NamedValue,
diff --git a/tests/unit/services/extract-service.test.ts b/tests/unit/services/extract-service.test.ts
index 090b820..191230c 100644
--- a/tests/unit/services/extract-service.test.ts
+++ b/tests/unit/services/extract-service.test.ts
@@ -744,6 +744,61 @@ describe('extract-service', () => {
       expect(result.exitCode).toBe(0);
     });
 
+    it.each([ResourceType.ServicePolicy, ResourceType.PolicyFragment])(
+      'extracts %s with Liquid without false lookups or policy changes',
+      async (policyType) => {
+        const policy = `<policies><inbound>
+          <set-header name="Auth"><value>{{real-value}}</value></set-header>
+          <set-body template="liquid">{{context.Request.MatchedParameters["id"]}}</set-body>
+        </inbound><outbound>
+          <set-body template="liquid">{{body.envelope.body.Test_Result.test}}</set-body>
+        </outbound></policies>`;
+        const policyResource = { name: 'liquid-policy', properties: { value: policy } };
+        const client = createMockClient(
+          policyType === ResourceType.PolicyFragment
+            ? { [ResourceType.PolicyFragment]: [policyResource] }
+            : {}
+        );
+        client.getResource.mockImplementation(async (_context, descriptor: ResourceDescriptor) => {
+          if (policyType === ResourceType.ServicePolicy && descriptor.type === policyType) {
+            return policyResource;
+          }
+          if (descriptor.type === ResourceType.NamedValue && descriptor.nameParts[0] === 'real-value') {
+            return { name: 'real-value', properties: { value: 'configured-value' } };
+          }
+          return undefined;
+        });
+        const store = createMockStore();
+
+        const result = await runExtraction(client, store, {
+          service: testContext,
+          outputDir: '/output',
+          includeTransitive: true,
+          filter: { apis: [], namedValues: [] },
+          logLevel: LogLevel.INFO,
+        });
+
+        expect(result.exitCode).toBe(0);
+        expect(result.totalErrors).toBe(0);
+        const namedValueRequests = client.getResource.mock.calls
+          .map(([, descriptor]) => descriptor as ResourceDescriptor)
+          .filter((descriptor) => descriptor.type === ResourceType.NamedValue);
+        expect(namedValueRequests).toEqual([
+          expect.objectContaining({ nameParts: ['real-value'] }),
+        ]);
+        if (policyType === ResourceType.ServicePolicy) {
+          expect(store.writeContent).toHaveBeenCalledWith(
+            '/output', expect.objectContaining({ type: policyType }), policy, 'policy'
+          );
+          expect(result.collectedPolicies.get('service-policy')).toBe(policy);
+        } else {
+          expect(store.writeResource).toHaveBeenCalledWith(
+            '/output', expect.objectContaining({ type: policyType }), policyResource
+          );
+        }
+      }
+    );
+
     it('should extract backend pool members and policy fragment dependencies transitively', async () => {
       const backendId =
         '/subscriptions/s/resourceGroups/r/providers/Microsoft.ApiManagement/service/a/backends/member';
diff --git a/tests/unit/services/transitive-resolver.test.ts b/tests/unit/services/transitive-resolver.test.ts
index 8d05947..17837e9 100644
--- a/tests/unit/services/transitive-resolver.test.ts
+++ b/tests/unit/services/transitive-resolver.test.ts
@@ -36,6 +36,113 @@ describe('transitive-resolver', () => {
       expect(nvRefs[1]?.name).toBe('secret-2');
     });
 
+    it('ignores Liquid output expressions while retaining real policy dependencies', () => {
+      const policy = `
+        <policies>
+          <inbound>
+            <set-header name="Auth"><value>{{my-secret}}</value></set-header>
+            <set-body template="liquid">
+              <request>{{context.Request.MatchedParameters["id"]}}</request>
+            </set-body>
+            <set-backend-service backend-id="soap-backend" />
+          </inbound>
+          <outbound>
+            <set-body template="liquid">
+              {"result": "{{body.envelope.body.Test_Result.test}}"}
+            </set-body>
+          </outbound>
+          <on-error>
+            <set-body template="liquid">
+              {"code": "{{body.envelope.body.fault.faultcode}}",
+               "message": "{{body.envelope.body.fault.faultstring}}"}
+            </set-body>
+            <include-fragment fragment-id="error-handler" />
+          </on-error>
+        </policies>
+      `;
+
+      expect(scanPolicyReferences(policy)).toEqual([
+        { type: ResourceType.NamedValue, name: 'my-secret' },
+        { type: ResourceType.Backend, name: 'soap-backend' },
+        { type: ResourceType.PolicyFragment, name: 'error-handler' },
+      ]);
+    });
+
+    it.each([
+      'template="liquid"',
+      "template='liquid'",
+      'parse-date="false"\n template = "liquid" xsi-nil="blank"',
+    ])('ignores Liquid variables and filters with attributes %s', (attributes) => {
+      const policy = `<set-body ${attributes}><![CDATA[
+        {% assign result = body.value %}{{result}} {{ body.value | Escape }}
+      ]]></set-body><value>{{real-value}}</value>`;
+
+      expect(scanPolicyReferences(policy)).toEqual([
+        { type: ResourceType.NamedValue, name: 'real-value' },
+      ]);
+    });
+
+    it('retains named values in non-Liquid bodies and Liquid opening attributes', () => {
+      const policy = `<set-body>{{plain-value}}</set-body>
+        <set-body template="liquid" parse-date="{{parse-date}}">{{body.value}}</set-body>
+        <set-body>@{ return "{{expression-value}}"; }</set-body>`;
+
+      expect(scanPolicyReferences(policy)).toEqual([
+        { type: ResourceType.NamedValue, name: 'plain-value' },
+        { type: ResourceType.NamedValue, name: 'parse-date' },
+        { type: ResourceType.NamedValue, name: 'expression-value' },
+      ]);
+    });
+
+    it.each([
+      '<![CDATA[</set-body>{{body.value}}]]>',
+      '<!-- </set-body> -->{{body.value}}',
+      '<root><set-body>{{body.first}}</set-body><value>{{body.second}}</value></root>',
+      '<set-body /><set-body template="liquid">{{body.first}}</set-body>{{body.second}}',
+    ])('ignores the entire Liquid body despite embedded boundaries: %s', (body) => {
+      const policy = `<value>{{before}}</value>
+        <set-body template="liquid" parse-date="{{parse-date}}">${body}</set-body>
+        <set-body>{{after}}</set-body>`;
+
+      expect(scanPolicyReferences(policy)).toEqual([
+        { type: ResourceType.NamedValue, name: 'before' },
+        { type: ResourceType.NamedValue, name: 'parse-date' },
+        { type: ResourceType.NamedValue, name: 'after' },
+      ]);
+    });
+
+    it.each([
+      '<!-- <set-body template="liquid">{{comment-value}}</set-body> -->',
+      '<![CDATA[<set-body template="liquid">{{comment-value}}</set-body>]]>',
+    ])('does not treat tag-like text as a Liquid element: %s', (body) => {
+      const policy = `${body}<set-body>{{plain-value}}</set-body>
+        <set-body template="liquid">{{body.value}}</set-body>`;
+
+      expect(scanPolicyReferences(policy)).toEqual([
+        { type: ResourceType.NamedValue, name: 'comment-value' },
+        { type: ResourceType.NamedValue, name: 'plain-value' },
+      ]);
+    });
+
+    it('tolerates raw C# expressions and empty Liquid elements without changing backend or fragment scanning', () => {
+      const policy = `<set-body>@{ return 1 < 2 && true ? "{{expression-value}}" : ""; }</set-body>
+        <set-body template="liquid" parse-date="{{parse-date}}" />
+        <value>{{after-empty}}</value>
+        <set-body template="liquid">
+          <set-backend-service backend-id="body-backend" />
+          <include-fragment fragment-id="body-fragment" />
+          {{body.value}}
+        </set-body>`;
+
+      expect(scanPolicyReferences(policy)).toEqual([
+        { type: ResourceType.NamedValue, name: 'expression-value' },
+        { type: ResourceType.NamedValue, name: 'parse-date' },
+        { type: ResourceType.NamedValue, name: 'after-empty' },
+        { type: ResourceType.Backend, name: 'body-backend' },
+        { type: ResourceType.PolicyFragment, name: 'body-fragment' },
+      ]);
+    });
+
     it('should detect backend references', () => {
       const policy = '<policies><inbound><set-backend-service backend-id="my-backend" /></inbound></policies>';
       const refs = scanPolicyReferences(policy);