diff --git a/src/datasets/config.py b/src/datasets/config.py
index 0b80b1a2c87..9ed22ea3760 100644
--- a/src/datasets/config.py
+++ b/src/datasets/config.py
@@ -132,6 +132,10 @@
 DEFAULT_DOWNLOADED_DATASETS_PATH = os.path.join(HF_DATASETS_CACHE, DOWNLOADED_DATASETS_DIR)
 DOWNLOADED_DATASETS_PATH = Path(os.getenv("HF_DATASETS_DOWNLOADED_DATASETS_PATH", DEFAULT_DOWNLOADED_DATASETS_PATH))
 
+EXTRACTED_DATASETS_DIR = "extracted"
+DEFAULT_EXTRACTED_DATASETS_PATH = os.path.join(DEFAULT_DOWNLOADED_DATASETS_PATH, EXTRACTED_DATASETS_DIR)
+EXTRACTED_DATASETS_PATH = Path(os.getenv("HF_DATASETS_EXTRACTED_DATASETS_PATH", DEFAULT_EXTRACTED_DATASETS_PATH))
+
 # Batch size constants. For more info, see:
 # https://github.com/apache/arrow/blob/master/docs/source/cpp/arrays.rst#size-limitations-and-recommendations)
 DEFAULT_MAX_BATCH_SIZE = 10_000
diff --git a/src/datasets/utils/file_utils.py b/src/datasets/utils/file_utils.py
index 6e2e907f15d..9aabbd49378 100644
--- a/src/datasets/utils/file_utils.py
+++ b/src/datasets/utils/file_utils.py
@@ -312,9 +312,15 @@ def cached_path(
             return output_path
 
         # Path where we extract compressed archives
-        # We extract in the cache dir, and get the extracted path name by hashing the original path"
+        # We extract in the cache dir, and get the extracted path name by hashing the original path
         abs_output_path = os.path.abspath(output_path)
-        output_path_extracted = os.path.join(cache_dir, "extracted", hash_url_to_filename(abs_output_path))
+        output_path_extracted = (
+            os.path.join(
+                download_config.cache_dir, config.EXTRACTED_DATASETS_DIR, hash_url_to_filename(abs_output_path)
+            )
+            if download_config.cache_dir
+            else os.path.join(config.EXTRACTED_DATASETS_PATH, hash_url_to_filename(abs_output_path))
+        )
 
         if (
             os.path.isdir(output_path_extracted)
diff --git a/tests/conftest.py b/tests/conftest.py
index c1cc0a1eef9..034cae1ed8c 100644
--- a/tests/conftest.py
+++ b/tests/conftest.py
@@ -23,6 +23,8 @@ def set_test_cache_config(tmp_path_factory, monkeypatch):
     monkeypatch.setattr("datasets.config.HF_MODULES_CACHE", str(test_hf_modules_cache))
     test_downloaded_datasets_path = test_hf_datasets_cache / "downloads"
     monkeypatch.setattr("datasets.config.DOWNLOADED_DATASETS_PATH", str(test_downloaded_datasets_path))
+    test_extracted_datasets_path = test_hf_datasets_cache / "downloads" / "extracted"
+    monkeypatch.setattr("datasets.config.EXTRACTED_DATASETS_PATH", str(test_extracted_datasets_path))
 
 
 FILE_CONTENT = """\
diff --git a/tests/test_file_utils.py b/tests/test_file_utils.py
index 978d80c7742..38052eea26b 100644
--- a/tests/test_file_utils.py
+++ b/tests/test_file_utils.py
@@ -84,6 +84,29 @@ def test_cached_path_extract(xz_file, tmp_path, text_file):
     assert extracted_file_content == expected_file_content
 
 
+@pytest.mark.parametrize("default_extracted", [True, False])
+@pytest.mark.parametrize("default_cache_dir", [True, False])
+def test_extracted_datasets_path(default_extracted, default_cache_dir, xz_file, tmp_path, monkeypatch):
+    custom_cache_dir = "custom_cache"
+    custom_extracted_dir = "custom_extracted_dir"
+    custom_extracted_path = tmp_path / "custom_extracted_path"
+    if default_extracted:
+        expected = ("downloads" if default_cache_dir else custom_cache_dir, "extracted")
+    else:
+        monkeypatch.setattr("datasets.config.EXTRACTED_DATASETS_DIR", custom_extracted_dir)
+        monkeypatch.setattr("datasets.config.EXTRACTED_DATASETS_PATH", str(custom_extracted_path))
+        expected = custom_extracted_path.parts[-2:] if default_cache_dir else (custom_cache_dir, custom_extracted_dir)
+
+    filename = xz_file
+    download_config = (
+        DownloadConfig(extract_compressed_file=True)
+        if default_cache_dir
+        else DownloadConfig(cache_dir=tmp_path / custom_cache_dir, extract_compressed_file=True)
+    )
+    extracted_file_path = cached_path(filename, download_config=download_config)
+    assert Path(extracted_file_path).parent.parts[-2:] == expected
+
+
 def test_cached_path_local(text_file):
     # absolute path
     text_file = str(Path(text_file).resolve())