Dependencies not resolving from different workspaces

[dagda1]

I have more than one workspace defined in both my package.json file:

"workspaces": [
  "apps/*",
  "packages/*"
],

And in my pnp-workspace.yaml file:

prefer-workspace-packages: true
link-workspace-packages: deep
packages:
  - 'packages/*'
  - 'apps/*'

I have a package named devtools in packages/devtools and it has dependencies that includes things like babel-loader

{
  "name": "devtools",
  "dependencies": {
    "babel-loader": "^8.2.3",
    // etc.

Everything resolves ok in the packages workspace but in the apps workspace I have a package named website that references devtools from the other workspace.:

{
  "name": "website",
  "devDependencies": {
    "devtools": "workspace:../../packages/devtools",

But when building through webpack, I get an error:

ModuleNotFoundError: Module not found: Error: Can't resolve 'babel-loader' in '/Users/xxx/projects/cuttingedge/apps/website'

THe only way to make this work is to either add all the dependencies from the devtools package.json to the website package.json or to add the missing dependencies to the main package.json

When there is only one work workspace, everything works as expected.