diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/descriptors/MutableClassDescriptorLite.java b/compiler/frontend/src/org/jetbrains/jet/lang/descriptors/MutableClassDescriptorLite.java
index 61df63aa3fd..08b98c5d1af 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/descriptors/MutableClassDescriptorLite.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/descriptors/MutableClassDescriptorLite.java
@@ -91,23 +91,6 @@ public abstract class MutableClassDescriptorLite extends ClassDescriptorBase {
         return this;
     }
 
-    private static boolean isStatic(ClassDescriptor declarationClassDescriptor) {
-        if (declarationClassDescriptor.getKind() == ClassKind.ENUM_CLASS) {
-            return true;
-        }
-        DeclarationDescriptor containingDescriptor = declarationClassDescriptor.getContainingDeclaration();
-        if (containingDescriptor instanceof NamespaceDescriptor) {
-            return true;
-        }
-        else if (containingDescriptor instanceof ClassDescriptor) {
-            ClassDescriptor containingClassDescriptor = (ClassDescriptor) containingDescriptor;
-            return containingClassDescriptor.getKind().isObject();
-        }
-        else {
-            return false;
-        }
-    }
-
     @NotNull
     @Override
     public TypeConstructor getTypeConstructor() {
@@ -294,7 +277,7 @@ public abstract class MutableClassDescriptorLite extends ClassDescriptorBase {
 
                 @Override
                 public ClassObjectStatus setClassObjectDescriptor(@NotNull MutableClassDescriptorLite classObjectDescriptor) {
-                    if (getKind().isObject()) {
+                    if (getKind().isObject() || isInner()) {
                         return ClassObjectStatus.NOT_ALLOWED;
                     }
 
@@ -302,10 +285,6 @@ public abstract class MutableClassDescriptorLite extends ClassDescriptorBase {
                         return ClassObjectStatus.DUPLICATE;
                     }
 
-                    if (!isStatic(MutableClassDescriptorLite.this)) {
-                        return ClassObjectStatus.NOT_ALLOWED;
-                    }
-
                     assert classObjectDescriptor.getKind() == ClassKind.CLASS_OBJECT;
                     MutableClassDescriptorLite.this.classObjectDescriptor = classObjectDescriptor;
 
diff --git a/compiler/testData/diagnostics/tests/InnerClassClassObject.kt b/compiler/testData/diagnostics/tests/InnerClassClassObject.kt
index 39ff4413733..e6c057f600d 100644
--- a/compiler/testData/diagnostics/tests/InnerClassClassObject.kt
+++ b/compiler/testData/diagnostics/tests/InnerClassClassObject.kt
@@ -1,7 +1,7 @@
 // http://youtrack.jetbrains.net/issue/KT-449
 
 class A {
-    class B {
+    inner class B {
         <!CLASS_OBJECT_NOT_ALLOWED!>class object { }<!>
     }
 }
@@ -18,3 +18,8 @@ class B {
     }
 }
 
+class C {
+    class D {
+        class object { }
+    }
+}