diff --git a/compiler/fir/analysis-tests/testData/resolve/cfg/propertiesAndInitBlocks.dot b/compiler/fir/analysis-tests/testData/resolve/cfg/propertiesAndInitBlocks.dot
index 0a055a69561..d0a556432aa 100644
--- a/compiler/fir/analysis-tests/testData/resolve/cfg/propertiesAndInitBlocks.dot
+++ b/compiler/fir/analysis-tests/testData/resolve/cfg/propertiesAndInitBlocks.dot
@@ -283,25 +283,25 @@ digraph propertiesAndInitBlocks_kt {
             }
             subgraph cluster_29 {
                 color=blue
-                91 [label="Enter finally"];
+                91 [label="Catch enter"];
                 subgraph cluster_30 {
                     color=blue
                     92 [label="Enter block"];
-                    93 [label="Const: Int(0)"];
+                    93 [label="Const: Int(2)"];
                     94 [label="Exit block"];
                 }
-                95 [label="Exit finally"];
+                95 [label="Catch exit"];
             }
             subgraph cluster_31 {
                 color=blue
-                96 [label="Catch enter"];
+                96 [label="Enter finally"];
                 subgraph cluster_32 {
                     color=blue
                     97 [label="Enter block"];
-                    98 [label="Const: Int(2)"];
+                    98 [label="Const: Int(0)"];
                     99 [label="Exit block"];
                 }
-                100 [label="Catch exit"];
+                100 [label="Exit finally"];
             }
             101 [label="Try expression exit"];
         }
@@ -309,17 +309,17 @@ digraph propertiesAndInitBlocks_kt {
     }
     84 -> {85};
     85 -> {86};
-    86 -> {102 96 91 87};
+    86 -> {102 91 96 87};
     87 -> {88};
     88 -> {89};
     89 -> {90};
-    90 -> {101};
-    91 -> {92};
+    90 -> {96};
+    91 -> {102 92};
     92 -> {93};
     93 -> {94};
     94 -> {95};
-    95 -> {101};
-    96 -> {102 97};
+    95 -> {96};
+    96 -> {97};
     97 -> {98};
     98 -> {99};
     99 -> {100};
diff --git a/compiler/fir/analysis-tests/testData/resolveWithStdlib/smartcasts/tryWithLambdaInside.dot b/compiler/fir/analysis-tests/testData/resolveWithStdlib/smartcasts/tryWithLambdaInside.dot
index 3af3e0d50fb..f342deb184a 100644
--- a/compiler/fir/analysis-tests/testData/resolveWithStdlib/smartcasts/tryWithLambdaInside.dot
+++ b/compiler/fir/analysis-tests/testData/resolveWithStdlib/smartcasts/tryWithLambdaInside.dot
@@ -110,7 +110,7 @@ finally {
     18 -> {19};
     19 -> {20};
     20 -> {21};
-    21 -> {26};
+    21 -> {22};
     22 -> {23};
     23 -> {24};
     24 -> {25};
@@ -198,7 +198,7 @@ finally {
     43 -> {44};
     44 -> {45};
     45 -> {46};
-    46 -> {51};
+    46 -> {47};
     47 -> {48};
     48 -> {49};
     49 -> {50};
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/dfa/cfg/ControlFlowGraphBuilder.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/dfa/cfg/ControlFlowGraphBuilder.kt
index 6d1f6f6647e..ae47650e47f 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/dfa/cfg/ControlFlowGraphBuilder.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/dfa/cfg/ControlFlowGraphBuilder.kt
@@ -804,7 +804,13 @@ class ControlFlowGraphBuilder {
         levelCounter--
         val node = createTryMainBlockExitNode(tryExpression)
         popAndAddEdge(node)
-        addEdge(node, tryExitNodes.top())
+        val finallyEnterNode = finallyEnterNodes.topOrNull()
+        // NB: Check the level to avoid adding an edge to the finally block at an upper level.
+        if (finallyEnterNode != null && finallyEnterNode.level == levelCounter + 1) {
+            addEdge(node, finallyEnterNode)
+        } else {
+            addEdge(node, tryExitNodes.top())
+        }
         return node
     }
 
@@ -816,7 +822,13 @@ class ControlFlowGraphBuilder {
         levelCounter--
         return createCatchClauseExitNode(catch).also {
             popAndAddEdge(it)
-            addEdge(it, tryExitNodes.top(), propagateDeadness = false)
+            val finallyEnterNode = finallyEnterNodes.topOrNull()
+            // NB: Check the level to avoid adding an edge to the finally block at an upper level.
+            if (finallyEnterNode != null && finallyEnterNode.level == levelCounter + 1) {
+                addEdge(it, finallyEnterNode, propagateDeadness = false)
+            } else {
+                addEdge(it, tryExitNodes.top(), propagateDeadness = false)
+            }
         }
     }
 
diff --git a/compiler/testData/diagnostics/testsWithStdLib/contracts/controlflow/flowInlining/nestedTryCatchFinally.fir.kt b/compiler/testData/diagnostics/testsWithStdLib/contracts/controlflow/flowInlining/nestedTryCatchFinally.fir.kt
index d09ec05a883..d7d436c9b87 100644
--- a/compiler/testData/diagnostics/testsWithStdLib/contracts/controlflow/flowInlining/nestedTryCatchFinally.fir.kt
+++ b/compiler/testData/diagnostics/testsWithStdLib/contracts/controlflow/flowInlining/nestedTryCatchFinally.fir.kt
@@ -45,7 +45,7 @@ fun outerFinallyInitializes() {
     }
 
     // Properly initialized
-    <!UNINITIALIZED_VARIABLE!>x<!>.inc()
+    x.inc()
 }
 
 fun innerFinallyInitializes() {