diff --git a/libraries/tools/kotlin-gradle-plugin-core/src/main/kotlin/org/jetbrains/kotlin/gradle/tasks/Tasks.kt b/libraries/tools/kotlin-gradle-plugin-core/src/main/kotlin/org/jetbrains/kotlin/gradle/tasks/Tasks.kt
index 6b95e64ebcb..fa693ba1040 100644
--- a/libraries/tools/kotlin-gradle-plugin-core/src/main/kotlin/org/jetbrains/kotlin/gradle/tasks/Tasks.kt
+++ b/libraries/tools/kotlin-gradle-plugin-core/src/main/kotlin/org/jetbrains/kotlin/gradle/tasks/Tasks.kt
@@ -457,6 +457,11 @@ open class KotlinCompile() : AbstractKotlinCompile<K2JVMCompilerArguments>() {
             outputDir: File,
             args: K2JVMCompilerArguments
     ): ExitCode {
+        logger.kotlinDebug("Removing all kotlin classes in $outputDir")
+        // we're free to delete all classes since only we know about that directory
+        // todo: can be optimized -- compile and remove only files that were not generated
+        listClassFiles(outputDir.canonicalPath).forEach { it.delete() }
+
         val moduleFile = makeModuleFile(args.moduleName, isTest = false, outputDir = outputDir, sourcesToCompile = sourcesToCompile, javaSourceRoots = getJavaSourceRoots(), classpath = classpath, friendDirs = listOf())
         args.module = moduleFile.absolutePath
         val messageCollector = GradleMessageCollector(logger)
diff --git a/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/CacheVersionChangedIT.kt b/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/CacheVersionChangedIT.kt
index ba3cc399320..06536e343d1 100644
--- a/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/CacheVersionChangedIT.kt
+++ b/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/CacheVersionChangedIT.kt
@@ -1,6 +1,6 @@
 package org.jetbrains.kotlin.gradle
 
-import org.jetbrains.kotlin.gradle.util.findFileByName
+import org.jetbrains.kotlin.gradle.util.getFileByName
 import org.jetbrains.kotlin.gradle.util.modify
 import org.junit.Test
 import java.io.File
@@ -44,7 +44,7 @@ class CacheVersionChangedIT : BaseGradleIT() {
         versionFile.writeText(modifiedVersion)
 
         // gradle won't call kotlin task if no file is changed
-        val dummyKtFile = project.projectDir.findFileByName("Dummy.kt")
+        val dummyKtFile = project.projectDir.getFileByName("Dummy.kt")
         dummyKtFile.modify { it + " " }
 
         project.build("build", options = options) {
diff --git a/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/ClassFileIsRemovedIT.kt b/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/ClassFileIsRemovedIT.kt
new file mode 100644
index 00000000000..c30108f8ab3
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/ClassFileIsRemovedIT.kt
@@ -0,0 +1,65 @@
+package org.jetbrains.kotlin.gradle
+
+import org.jetbrains.kotlin.gradle.util.findFileByName
+import org.jetbrains.kotlin.gradle.util.getFileByName
+import org.jetbrains.kotlin.gradle.util.modify
+import org.junit.Test
+import java.io.File
+import kotlin.test.assertNull
+import kotlin.test.assertTrue
+
+class ClassFileIsRemovedIT : BaseGradleIT() {
+    @Test
+    fun testClassIsRemovedNonIC() {
+        doTestClassIsRemoved(defaultBuildOptions())
+    }
+
+    @Test
+    fun testClassIsRemovedIC() {
+        doTestClassIsRemoved(defaultBuildOptions().copy(incremental = true))
+    }
+
+    private fun doTestClassIsRemoved(buildOptions: BuildOptions) {
+        doTest(buildOptions) { dummyFile ->
+            assertTrue(dummyFile.delete(), "Could not delete $dummyFile")
+        }
+    }
+
+    @Test
+    fun testClassIsRenamedNonIC() {
+        doTestClassIsRenamed(defaultBuildOptions())
+    }
+
+    @Test
+    fun testClassIsRenamedIC() {
+        doTestClassIsRenamed(defaultBuildOptions().copy(incremental = true))
+    }
+
+    fun doTestClassIsRenamed(buildOptions: BuildOptions) {
+        doTest(buildOptions) { dummyFile ->
+            dummyFile.modify { it.replace("Dummy", "ForDummies") }
+        }
+    }
+
+    fun doTest(buildOptions: BuildOptions, transformDummy: (File)->Unit) {
+        val project = Project("kotlinInJavaRoot", "2.10")
+        project.build("build", options = buildOptions) {
+            assertSuccessful()
+        }
+
+        val dummyFile = project.projectDir.getFileByName("Dummy.kt")
+        transformDummy(dummyFile)
+
+        project.build("build", options = buildOptions) {
+            assertSuccessful()
+            val dummyClassFile = project.projectDir.findFileByName("Dummy.class")
+            assertNull(dummyClassFile, "$dummyClassFile should not exist!")
+        }
+
+        // check that class removal does not trigger rebuild
+        project.build("build", options = buildOptions) {
+            assertSuccessful()
+            assertContains(":compileKotlin UP-TO-DATE", ":compileJava UP-TO-DATE")
+        }
+    }
+}
\ No newline at end of file
diff --git a/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/util/fileUtil.kt b/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/util/fileUtil.kt
index 98beadf4dda..ba96c1012cd 100644
--- a/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/util/fileUtil.kt
+++ b/libraries/tools/kotlin-gradle-plugin/src/test/kotlin/org/jetbrains/kotlin/gradle/util/fileUtil.kt
@@ -2,9 +2,11 @@ package org.jetbrains.kotlin.gradle.util
 
 import java.io.File
 
-fun File.findFileByName(name: String): File =
+fun File.getFileByName(name: String): File =
+        findFileByName(name) ?: throw AssertionError("Could not find file with name '$name' in $this")
+
+fun File.findFileByName(name: String): File? =
         walk().filter { it.isFile && it.name.equals(name, ignoreCase = true) }.firstOrNull()
-        ?: throw AssertionError("Could not find file with name '$name' in $this")
 
 fun File.modify(transform: (String)->String) {
     writeText(transform(readText()))
diff --git a/libraries/tools/kotlin-gradle-plugin/src/test/resources/testProject/kotlinInJavaRoot/gradle.properties b/libraries/tools/kotlin-gradle-plugin/src/test/resources/testProject/kotlinInJavaRoot/gradle.properties
new file mode 100644
index 00000000000..93ce6a94e63
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin/src/test/resources/testProject/kotlinInJavaRoot/gradle.properties
@@ -0,0 +1 @@
+org.gradle.jvmargs=-Xmx1024m -XX:MaxPermSize=512m
\ No newline at end of file
diff --git a/libraries/tools/kotlin-gradle-plugin/src/test/resources/testProject/kotlinInJavaRoot/src/main/java/kotlinPackage/Dummy.kt b/libraries/tools/kotlin-gradle-plugin/src/test/resources/testProject/kotlinInJavaRoot/src/main/java/kotlinPackage/Dummy.kt
new file mode 100644
index 00000000000..9e813f97944
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin/src/test/resources/testProject/kotlinInJavaRoot/src/main/java/kotlinPackage/Dummy.kt
@@ -0,0 +1,3 @@
+package kotlinPackage
+
+class Dummy