diff --git a/compiler/fir/fir2ir/tests-gen/org/jetbrains/kotlin/codegen/ir/FirBlackBoxCodegenTestGenerated.java b/compiler/fir/fir2ir/tests-gen/org/jetbrains/kotlin/codegen/ir/FirBlackBoxCodegenTestGenerated.java
index 48e13480e7a..e887825e0c9 100644
--- a/compiler/fir/fir2ir/tests-gen/org/jetbrains/kotlin/codegen/ir/FirBlackBoxCodegenTestGenerated.java
+++ b/compiler/fir/fir2ir/tests-gen/org/jetbrains/kotlin/codegen/ir/FirBlackBoxCodegenTestGenerated.java
@@ -14157,6 +14157,11 @@ public class FirBlackBoxCodegenTestGenerated extends AbstractFirBlackBoxCodegenT
             runTest("compiler/testData/codegen/box/inlineClasses/multifileClass.kt");
         }
 
+        @TestMetadata("nestedInlineClass.kt")
+        public void testNestedInlineClass() throws Exception {
+            runTest("compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt");
+        }
+
         @TestMetadata("noAssertionsOnInlineClassBasedOnNullableType.kt")
         public void testNoAssertionsOnInlineClassBasedOnNullableType() throws Exception {
             runTest("compiler/testData/codegen/box/inlineClasses/noAssertionsOnInlineClassBasedOnNullableType.kt");
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java
index 42bf6d53016..1d7d12906bc 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java
@@ -704,7 +704,7 @@ public class DefaultErrorMessages {
         MAP.put(NON_PRIVATE_CONSTRUCTOR_IN_ENUM, "Constructor must be private in enum class");
         MAP.put(NON_PRIVATE_CONSTRUCTOR_IN_SEALED, "Constructor must be private in sealed class");
 
-        MAP.put(INLINE_CLASS_NOT_TOP_LEVEL, "Inline classes are only allowed on top level");
+        MAP.put(INLINE_CLASS_NOT_TOP_LEVEL, "Inline classes cannot be local or inner");
         MAP.put(INLINE_CLASS_NOT_FINAL, "Inline classes can be only final");
         MAP.put(ABSENCE_OF_PRIMARY_CONSTRUCTOR_FOR_INLINE_CLASS, "Primary constructor is required for inline class");
         MAP.put(INLINE_CLASS_CONSTRUCTOR_WRONG_PARAMETERS_SIZE, "Inline class must have exactly one primary constructor parameter");
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/checkers/InlineClassDeclarationChecker.kt b/compiler/frontend/src/org/jetbrains/kotlin/resolve/checkers/InlineClassDeclarationChecker.kt
index 64f026ace36..66616901983 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/checkers/InlineClassDeclarationChecker.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/checkers/InlineClassDeclarationChecker.kt
@@ -29,7 +29,7 @@ object InlineClassDeclarationChecker : DeclarationChecker {
         require(inlineOrValueKeyword != null) { "Declaration of inline class must have 'inline' keyword" }
 
         val trace = context.trace
-        if (!DescriptorUtils.isTopLevelDeclaration(descriptor)) {
+        if (descriptor.isInner || DescriptorUtils.isLocal(descriptor)) {
             trace.report(Errors.INLINE_CLASS_NOT_TOP_LEVEL.on(inlineOrValueKeyword))
             return
         }
diff --git a/compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt b/compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt
new file mode 100644
index 00000000000..e3e8528ae0c
--- /dev/null
+++ b/compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt
@@ -0,0 +1,25 @@
+// !LANGUAGE: +InlineClasses
+
+class C {
+    inline class IC1(val s: String)
+
+    companion object {
+        inline class IC2(val s: String)
+    }
+}
+
+object O {
+    inline class IC3(val s: String)
+}
+
+interface I {
+    inline class IC4(val s: String)
+}
+
+fun box(): String {
+    if (C.IC1("OK").s != "OK") return "FAIL 1"
+    if (C.Companion.IC2("OK").s != "OK") return "FAIL 2"
+    if (O.IC3("OK").s != "OK") return "FAIL 3"
+    if (I.IC4("OK").s != "OK") return "FAIL 4"
+    return "OK"
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.fir.kt b/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.fir.kt
index a16404c9a45..5911eaa8f3e 100644
--- a/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.fir.kt
+++ b/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.fir.kt
@@ -16,13 +16,20 @@ inline class A9(final val x: Int)
 class B1 {
     companion object {
         inline class C1(val x: Int)
+        inner inline class C11(val x: Int)
     }
 
     inline class C2(val x: Int)
+    inner inline class C21(val x: Int)
 }
 
 object B2 {
     inline class C3(val x: Int)
+    inner inline class C31(val x: Int)
+}
+
+fun foo() {
+    inline class C4(val x: Int)
 }
 
 final inline class D0(val x: Int)
diff --git a/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.kt b/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.kt
index 492c52e6a14..cd55c8f55f5 100644
--- a/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.kt
+++ b/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.kt
@@ -15,14 +15,21 @@ inline class A9(final val x: Int)
 
 class B1 {
     companion object {
-        <!INLINE_CLASS_NOT_TOP_LEVEL!>inline<!> class C1(val x: Int)
+        inline class C1(val x: Int)
+        <!WRONG_MODIFIER_CONTAINING_DECLARATION!>inner<!> inline class C11(val x: Int)
     }
 
-    <!INLINE_CLASS_NOT_TOP_LEVEL!>inline<!> class C2(val x: Int)
+    inline class C2(val x: Int)
+    inner <!INLINE_CLASS_NOT_TOP_LEVEL!>inline<!> class C21(val x: Int)
 }
 
 object B2 {
-    <!INLINE_CLASS_NOT_TOP_LEVEL!>inline<!> class C3(val x: Int)
+    inline class C3(val x: Int)
+    <!WRONG_MODIFIER_CONTAINING_DECLARATION!>inner<!> inline class C31(val x: Int)
+}
+
+fun foo() {
+    <!INLINE_CLASS_NOT_TOP_LEVEL, WRONG_MODIFIER_TARGET!>inline<!> class C4(val x: Int)
 }
 
 final inline class D0(val x: Int)
diff --git a/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.txt b/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.txt
index 1ff6b483611..0933b86cc72 100644
--- a/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.txt
+++ b/compiler/testData/diagnostics/tests/inlineClasses/inlineClassDeclarationCheck.txt
@@ -1,5 +1,7 @@
 package
 
+public fun foo(): kotlin.Unit
+
 public final inline class A0 {
     public constructor A0(/*0*/ x: kotlin.Int)
     public final val x: kotlin.Int
@@ -92,6 +94,14 @@ public final class B1 {
         public open override /*1*/ /*synthesized*/ fun toString(): kotlin.String
     }
 
+    public final inner inline class C21 {
+        public constructor C21(/*0*/ x: kotlin.Int)
+        public final val x: kotlin.Int
+        public open override /*1*/ /*synthesized*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+        public open override /*1*/ /*synthesized*/ fun hashCode(): kotlin.Int
+        public open override /*1*/ /*synthesized*/ fun toString(): kotlin.String
+    }
+
     public companion object Companion {
         private constructor Companion()
         public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
@@ -105,6 +115,14 @@ public final class B1 {
             public open override /*1*/ /*synthesized*/ fun hashCode(): kotlin.Int
             public open override /*1*/ /*synthesized*/ fun toString(): kotlin.String
         }
+
+        public final inline class C11 {
+            public constructor C11(/*0*/ x: kotlin.Int)
+            public final val x: kotlin.Int
+            public open override /*1*/ /*synthesized*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+            public open override /*1*/ /*synthesized*/ fun hashCode(): kotlin.Int
+            public open override /*1*/ /*synthesized*/ fun toString(): kotlin.String
+        }
     }
 }
 
@@ -121,6 +139,14 @@ public object B2 {
         public open override /*1*/ /*synthesized*/ fun hashCode(): kotlin.Int
         public open override /*1*/ /*synthesized*/ fun toString(): kotlin.String
     }
+
+    public final inline class C31 {
+        public constructor C31(/*0*/ x: kotlin.Int)
+        public final val x: kotlin.Int
+        public open override /*1*/ /*synthesized*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+        public open override /*1*/ /*synthesized*/ fun hashCode(): kotlin.Int
+        public open override /*1*/ /*synthesized*/ fun toString(): kotlin.String
+    }
 }
 
 public final inline class D0 {
diff --git a/compiler/testData/diagnostics/tests/valueClasses/valueClassDeclarationCheck.kt b/compiler/testData/diagnostics/tests/valueClasses/valueClassDeclarationCheck.kt
index a55cfb64cb4..8deb953d413 100644
--- a/compiler/testData/diagnostics/tests/valueClasses/valueClassDeclarationCheck.kt
+++ b/compiler/testData/diagnostics/tests/valueClasses/valueClassDeclarationCheck.kt
@@ -30,16 +30,16 @@ value class A9(final val x: Int)
 class B1 {
     companion object {
         @JvmInline
-        <!INLINE_CLASS_NOT_TOP_LEVEL!>value<!> class C1(val x: Int)
+        value class C1(val x: Int)
     }
 
     @JvmInline
-    <!INLINE_CLASS_NOT_TOP_LEVEL!>value<!> class C2(val x: Int)
+    value class C2(val x: Int)
 }
 
 object B2 {
     @JvmInline
-    <!INLINE_CLASS_NOT_TOP_LEVEL!>value<!> class C3(val x: Int)
+    value class C3(val x: Int)
 }
 
 @JvmInline
diff --git a/compiler/tests-gen/org/jetbrains/kotlin/codegen/BlackBoxCodegenTestGenerated.java b/compiler/tests-gen/org/jetbrains/kotlin/codegen/BlackBoxCodegenTestGenerated.java
index d311c012888..a2faa93e722 100644
--- a/compiler/tests-gen/org/jetbrains/kotlin/codegen/BlackBoxCodegenTestGenerated.java
+++ b/compiler/tests-gen/org/jetbrains/kotlin/codegen/BlackBoxCodegenTestGenerated.java
@@ -15557,6 +15557,11 @@ public class BlackBoxCodegenTestGenerated extends AbstractBlackBoxCodegenTest {
             runTest("compiler/testData/codegen/box/inlineClasses/multifileClass.kt");
         }
 
+        @TestMetadata("nestedInlineClass.kt")
+        public void testNestedInlineClass() throws Exception {
+            runTest("compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt");
+        }
+
         @TestMetadata("noAssertionsOnInlineClassBasedOnNullableType.kt")
         public void testNoAssertionsOnInlineClassBasedOnNullableType() throws Exception {
             runTest("compiler/testData/codegen/box/inlineClasses/noAssertionsOnInlineClassBasedOnNullableType.kt");
diff --git a/compiler/tests-gen/org/jetbrains/kotlin/codegen/LightAnalysisModeTestGenerated.java b/compiler/tests-gen/org/jetbrains/kotlin/codegen/LightAnalysisModeTestGenerated.java
index dbfd03b0ea2..467716f9c04 100644
--- a/compiler/tests-gen/org/jetbrains/kotlin/codegen/LightAnalysisModeTestGenerated.java
+++ b/compiler/tests-gen/org/jetbrains/kotlin/codegen/LightAnalysisModeTestGenerated.java
@@ -15567,6 +15567,11 @@ public class LightAnalysisModeTestGenerated extends AbstractLightAnalysisModeTes
             runTest("compiler/testData/codegen/box/inlineClasses/mappingOfBoxedFlexibleInlineClassType.kt");
         }
 
+        @TestMetadata("nestedInlineClass.kt")
+        public void testNestedInlineClass() throws Exception {
+            runTest("compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt");
+        }
+
         @TestMetadata("noAssertionsOnInlineClassBasedOnNullableType.kt")
         public void testNoAssertionsOnInlineClassBasedOnNullableType() throws Exception {
             runTest("compiler/testData/codegen/box/inlineClasses/noAssertionsOnInlineClassBasedOnNullableType.kt");
diff --git a/compiler/tests-gen/org/jetbrains/kotlin/codegen/ir/IrBlackBoxCodegenTestGenerated.java b/compiler/tests-gen/org/jetbrains/kotlin/codegen/ir/IrBlackBoxCodegenTestGenerated.java
index 08eaf8c8cfd..e1c4edc5dd4 100644
--- a/compiler/tests-gen/org/jetbrains/kotlin/codegen/ir/IrBlackBoxCodegenTestGenerated.java
+++ b/compiler/tests-gen/org/jetbrains/kotlin/codegen/ir/IrBlackBoxCodegenTestGenerated.java
@@ -14157,6 +14157,11 @@ public class IrBlackBoxCodegenTestGenerated extends AbstractIrBlackBoxCodegenTes
             runTest("compiler/testData/codegen/box/inlineClasses/multifileClass.kt");
         }
 
+        @TestMetadata("nestedInlineClass.kt")
+        public void testNestedInlineClass() throws Exception {
+            runTest("compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt");
+        }
+
         @TestMetadata("noAssertionsOnInlineClassBasedOnNullableType.kt")
         public void testNoAssertionsOnInlineClassBasedOnNullableType() throws Exception {
             runTest("compiler/testData/codegen/box/inlineClasses/noAssertionsOnInlineClassBasedOnNullableType.kt");
diff --git a/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/es6/semantics/IrJsCodegenBoxES6TestGenerated.java b/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/es6/semantics/IrJsCodegenBoxES6TestGenerated.java
index f7c791c06be..ea6edae111a 100644
--- a/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/es6/semantics/IrJsCodegenBoxES6TestGenerated.java
+++ b/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/es6/semantics/IrJsCodegenBoxES6TestGenerated.java
@@ -12152,6 +12152,11 @@ public class IrJsCodegenBoxES6TestGenerated extends AbstractIrJsCodegenBoxES6Tes
             runTest("compiler/testData/codegen/box/inlineClasses/multifileClass.kt");
         }
 
+        @TestMetadata("nestedInlineClass.kt")
+        public void testNestedInlineClass() throws Exception {
+            runTest("compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt");
+        }
+
         @TestMetadata("noAssertionsOnInlineClassBasedOnNullableType.kt")
         public void testNoAssertionsOnInlineClassBasedOnNullableType() throws Exception {
             runTest("compiler/testData/codegen/box/inlineClasses/noAssertionsOnInlineClassBasedOnNullableType.kt");
diff --git a/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/ir/semantics/IrJsCodegenBoxTestGenerated.java b/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/ir/semantics/IrJsCodegenBoxTestGenerated.java
index ee3c62390c2..eb22ec13451 100644
--- a/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/ir/semantics/IrJsCodegenBoxTestGenerated.java
+++ b/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/ir/semantics/IrJsCodegenBoxTestGenerated.java
@@ -12152,6 +12152,11 @@ public class IrJsCodegenBoxTestGenerated extends AbstractIrJsCodegenBoxTest {
             runTest("compiler/testData/codegen/box/inlineClasses/multifileClass.kt");
         }
 
+        @TestMetadata("nestedInlineClass.kt")
+        public void testNestedInlineClass() throws Exception {
+            runTest("compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt");
+        }
+
         @TestMetadata("noAssertionsOnInlineClassBasedOnNullableType.kt")
         public void testNoAssertionsOnInlineClassBasedOnNullableType() throws Exception {
             runTest("compiler/testData/codegen/box/inlineClasses/noAssertionsOnInlineClassBasedOnNullableType.kt");
diff --git a/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/semantics/JsCodegenBoxTestGenerated.java b/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/semantics/JsCodegenBoxTestGenerated.java
index 4a23106375d..c5181fd0c2c 100644
--- a/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/semantics/JsCodegenBoxTestGenerated.java
+++ b/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/semantics/JsCodegenBoxTestGenerated.java
@@ -12217,6 +12217,11 @@ public class JsCodegenBoxTestGenerated extends AbstractJsCodegenBoxTest {
             runTest("compiler/testData/codegen/box/inlineClasses/multifileClass.kt");
         }
 
+        @TestMetadata("nestedInlineClass.kt")
+        public void testNestedInlineClass() throws Exception {
+            runTest("compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt");
+        }
+
         @TestMetadata("noAssertionsOnInlineClassBasedOnNullableType.kt")
         public void testNoAssertionsOnInlineClassBasedOnNullableType() throws Exception {
             runTest("compiler/testData/codegen/box/inlineClasses/noAssertionsOnInlineClassBasedOnNullableType.kt");
diff --git a/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/wasm/semantics/IrCodegenBoxWasmTestGenerated.java b/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/wasm/semantics/IrCodegenBoxWasmTestGenerated.java
index edfa36732fd..7bf5699dec3 100644
--- a/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/wasm/semantics/IrCodegenBoxWasmTestGenerated.java
+++ b/js/js.tests/tests-gen/org/jetbrains/kotlin/js/test/wasm/semantics/IrCodegenBoxWasmTestGenerated.java
@@ -6627,6 +6627,11 @@ public class IrCodegenBoxWasmTestGenerated extends AbstractIrCodegenBoxWasmTest
             runTest("compiler/testData/codegen/box/inlineClasses/mangledSuperCalls.kt");
         }
 
+        @TestMetadata("nestedInlineClass.kt")
+        public void testNestedInlineClass() throws Exception {
+            runTest("compiler/testData/codegen/box/inlineClasses/nestedInlineClass.kt");
+        }
+
         @TestMetadata("noAssertionsOnInlineClassBasedOnNullableType.kt")
         public void testNoAssertionsOnInlineClassBasedOnNullableType() throws Exception {
             runTest("compiler/testData/codegen/box/inlineClasses/noAssertionsOnInlineClassBasedOnNullableType.kt");