The following was my deployed servers:

client ------ nginx proxy(example.com) ------ back-end server(192.168.1.20)

The nginx proxy's external URL was configured under a virtual directory http://example.com/demo/ The back-end server was configure to http://192.168.1.20:8080/

the following was part of the nginx configure file:

    location /demo {
            proxy_pass      http://192.168.1.20:8080/;
            proxy_redirect  default;
            proxy_set_header        Host            $http_host;
            proxy_set_header        X-Real-IP       $remote_addr;
            proxy_set_header        X-Forwarded-For $proxy_add_x_forwarded_for;
    } 

When the back-end server send a redirect response (HTTP CODE 302) with LOCATION head field "http://192.168.1.20/subdir/", the nginx map this LOCATION header field to "http://example.com/subdir/", not the disired "http://example.com/demo/subdir/"