diff --git a/reactos/dll/win32/syssetup/install.c b/reactos/dll/win32/syssetup/install.c
index a9eb7c90a49..9f62894bdc4 100644
--- a/reactos/dll/win32/syssetup/install.c
+++ b/reactos/dll/win32/syssetup/install.c
@@ -488,7 +488,7 @@ InstallReactOS (HINSTANCE hInstance)
 {
   TCHAR sAccessories[256];
   TCHAR sGames[256];
-    
+  TCHAR szBuffer[MAX_PATH];  
 
 # if 0
   OutputDebugStringA ("InstallReactOS() called\n");
@@ -627,6 +627,13 @@ InstallReactOS (HINSTANCE hInstance)
   CreateTempDir(L"TEMP");
   CreateTempDir(L"TMP");
 
+  if (GetWindowsDirectory(szBuffer, sizeof(szBuffer) / sizeof(TCHAR)))
+  {
+    PathAddBackslash(szBuffer);
+    _tcscat(szBuffer, _T("system"));
+    CreateDirectory(szBuffer, NULL);
+  }
+
   hSysSetupInf = SetupOpenInfFileW(L"syssetup.inf",
 				   NULL,
 				   INF_STYLE_WIN4,