A turbocharged engine system including a low-pressure exhaust gas recirculation (EGR) system and an intake oxygen sensor is described, along with methods for its operation. The system includes a compressor bypass valve arranged in a passage bypassing a turbocharger compressor, and an EGR valve arranged in an EGR system which may be adjusted to adjust an amount of exhaust gas recirculated to the engine intake. In one example method, over-dilution of an engine intake charge may be reduced by reducing EGR upon opening of the compressor bypass valve, and then increasing the EGR only after measurements from an intake oxygen sensor indicate that intake air dilution has decreased below a threshold.