In the html for the backend app server is: <!--# include
virtual="http://www.domain.com/ssi/base.html" -->

Going to directly to http://www.domain.com/ssi/base.html in a browser
shows the file ok

However if it gets loaded as ssi, the request seems to go to the
backend (which says 404) - instead of being served from nginx.

Why is this?

Nginx config:

location / {
ssi on;
proxy_set_header Host $http_host;
proxy_pass http://backend;
proxy_redirect off;
}
location /ssi {
alias /var/www/ssi;
}