diff --git a/src/sql/workbench/contrib/notebook/browser/cellViews/markdownToolbar.component.ts b/src/sql/workbench/contrib/notebook/browser/cellViews/markdownToolbar.component.ts
index fab47a1d1c..b26d7c8f2d 100644
--- a/src/sql/workbench/contrib/notebook/browser/cellViews/markdownToolbar.component.ts
+++ b/src/sql/workbench/contrib/notebook/browser/cellViews/markdownToolbar.component.ts
@@ -236,11 +236,14 @@ export class MarkdownToolbarComponent extends AngularDisposable {
 				needsTransform = false;
 			} else {
 				let linkUrl = linkCalloutResult.insertUnescapedLinkUrl;
-				const isFile = URI.parse(linkUrl).scheme === 'file';
-				if (isFile && !path.isAbsolute(linkUrl)) {
-					const notebookDirName = path.dirname(this.cellModel?.notebookModel?.notebookUri.fsPath);
-					const relativePath = (linkUrl).replace(/\\/g, path.posix.sep);
-					linkUrl = path.resolve(notebookDirName, relativePath);
+				const isAnchorLink = linkUrl.startsWith('#');
+				if (!isAnchorLink) {
+					const isFile = URI.parse(linkUrl).scheme === 'file';
+					if (isFile && !path.isAbsolute(linkUrl)) {
+						const notebookDirName = path.dirname(this.cellModel?.notebookModel?.notebookUri.fsPath);
+						const relativePath = (linkUrl).replace(/\\/g, path.posix.sep);
+						linkUrl = path.resolve(notebookDirName, relativePath);
+					}
 				}
 				// Otherwise, re-focus on the output element, and insert the link directly.
 				this.output?.nativeElement?.focus();
diff --git a/src/sql/workbench/contrib/notebook/browser/htmlMarkdownConverter.ts b/src/sql/workbench/contrib/notebook/browser/htmlMarkdownConverter.ts
index 9fbeaaef04..4f1a116335 100644
--- a/src/sql/workbench/contrib/notebook/browser/htmlMarkdownConverter.ts
+++ b/src/sql/workbench/contrib/notebook/browser/htmlMarkdownConverter.ts
@@ -132,15 +132,28 @@ export class HTMLMarkdownConverter {
 		this.turndownService.addRule('a', {
 			filter: 'a',
 			replacement: (content, node) => {
-				//On Windows, if notebook is not trusted then the href attr is removed for all non-web URL links
-				// href contains either a hyperlink or a URI-encoded absolute path. (See resolveUrls method in notebookMarkdown.ts)
-				const notebookLink = node.href ? URI.parse(node.href) : URI.file(node.title);
-				const notebookFolder = this.notebookUri ? path.join(path.dirname(this.notebookUri.fsPath), path.sep) : '';
-				let relativePath = findPathRelativeToContent(notebookFolder, notebookLink);
-				if (relativePath) {
-					return `[${node.innerText}](${relativePath})`;
+				let href = node.href;
+				let notebookLink: URI | undefined;
+				const isAnchorLinkInFile = (node.attributes.href?.nodeValue.startsWith('#') || href.includes('#')) && href.startsWith('file://');
+				if (isAnchorLinkInFile) {
+					notebookLink = getUriAnchorLink(node, this.notebookUri);
+				} else {
+					//On Windows, if notebook is not trusted then the href attr is removed for all non-web URL links
+					// href contains either a hyperlink or a URI-encoded absolute path. (See resolveUrls method in notebookMarkdown.ts)
+					notebookLink = href ? URI.parse(href) : URI.file(node.title);
 				}
-				return `[${content}](${node.href})`;
+				const notebookFolder = this.notebookUri ? path.join(path.dirname(this.notebookUri.fsPath), path.sep) : '';
+				if (notebookLink.fsPath !== this.notebookUri.fsPath) {
+					let relativePath = findPathRelativeToContent(notebookFolder, notebookLink);
+					if (relativePath) {
+						return `[${node.innerText}](${relativePath})`;
+					}
+				} else if (notebookLink?.fragment) {
+					// if the anchor link is to a section in the same notebook then just add the fragment
+					return `[${content}](${notebookLink.fragment})`;
+				}
+
+				return `[${content}](${href})`;
 			}
 		});
 		// Only nested list case differs from original turndown rule
@@ -275,7 +288,7 @@ function blankReplacement(content, node) {
 export function findPathRelativeToContent(notebookFolder: string, contentPath: URI | undefined): string {
 	if (notebookFolder) {
 		if (contentPath?.scheme === 'file') {
-			let relativePath = path.relative(notebookFolder, contentPath.fsPath);
+			let relativePath = contentPath.fragment ? path.relative(notebookFolder, contentPath.fsPath).concat('#', contentPath.fragment) : path.relative(notebookFolder, contentPath.fsPath);
 			//if path contains whitespaces then it's not identified as a link
 			relativePath = relativePath.replace(/\s/g, '%20');
 			if (relativePath.startsWith(path.join('..', path.sep) || path.join('.', path.sep))) {
@@ -295,3 +308,15 @@ export function addHighlightIfYellowBgExists(node, content: string): string {
 	}
 	return content;
 }
+
+export function getUriAnchorLink(node, notebookUri: URI): URI {
+	const sectionLinkToAnotherFile = node.href.includes('#') && !node.attributes.href?.nodeValue.startsWith('#');
+	if (sectionLinkToAnotherFile) {
+		let absolutePath = !path.isAbsolute(node.attributes.href?.nodeValue) ? path.resolve(path.dirname(notebookUri.fsPath), node.attributes.href?.nodeValue) : node.attributes.href?.nodeValue;
+		// if section link is different from the current notebook
+		return URI.file(absolutePath);
+	} else {
+		// else build an uri using the current notebookUri
+		return URI.from({ scheme: 'file', path: notebookUri.path, fragment: node.attributes.href?.nodeValue });
+	}
+}
diff --git a/src/sql/workbench/contrib/notebook/test/browser/htmlMarkdownConverter.test.ts b/src/sql/workbench/contrib/notebook/test/browser/htmlMarkdownConverter.test.ts
index cc7f70f8c9..1a10cf0341 100644
--- a/src/sql/workbench/contrib/notebook/test/browser/htmlMarkdownConverter.test.ts
+++ b/src/sql/workbench/contrib/notebook/test/browser/htmlMarkdownConverter.test.ts
@@ -143,6 +143,12 @@ suite('HTML Markdown Converter', function (): void {
 		assert.equal(htmlMarkdownConverter.convert(htmlString), '[msft](http://www.microsoft.com/images/msft.png)', 'Basic http link test failed');
 		htmlString = 'Test <a href="http://www.microsoft.com/images/msft.png">msft</a>';
 		assert.equal(htmlMarkdownConverter.convert(htmlString), 'Test [msft](http://www.microsoft.com/images/msft.png)', 'Basic http link + text test failed');
+		htmlString = '<a href="#hello">hello</a>';
+		assert.equal(htmlMarkdownConverter.convert(htmlString), '[hello](#hello)', 'Basic link to a section failed');
+		htmlString = '<a href="file.md#hello">hello</a>';
+		assert.equal(htmlMarkdownConverter.convert(htmlString), `[hello](.${path.sep}file.md#hello)`, 'Basic anchor link to a section failed');
+		htmlString = '<a href="http://www.microsoft.com/images/msft.png#Hello">hello</a>';
+		assert.equal(htmlMarkdownConverter.convert(htmlString), '[hello](http://www.microsoft.com/images/msft.png#Hello)', 'Http link containing # sign failed');
 	});
 
 	test('Should transform <li> tags', () => {