diff --git a/compiler/testData/codegen/box/builderInference/issues/kt63840a.kt b/compiler/testData/codegen/box/builderInference/issues/kt63840a.kt
new file mode 100644
index 00000000000..75e45569fdf
--- /dev/null
+++ b/compiler/testData/codegen/box/builderInference/issues/kt63840a.kt
@@ -0,0 +1,36 @@
+// ISSUE: KT-63840
+// WITH_STDLIB
+
+// IGNORE_LIGHT_ANALYSIS
+// IGNORE_BACKEND_K1: ANY
+// REASON: red code (see corresponding diagnostic test)
+
+// IGNORE_BACKEND_K2: JVM_IR, WASM
+// REASON: run-time failure (java.lang.ArrayStoreException: TargetType @ Kt63840aKt$box$1.invoke)
+
+fun box(): String {
+    build {
+        select(
+            replaceTypeVariable(TargetType()),
+            DifferentType()
+        )
+    }
+    return "OK"
+}
+
+
+
+
+fun <T> select(vararg values: T): T = values.first()
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = TargetType() as TV
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}
diff --git a/compiler/testData/codegen/box/builderInference/issues/kt63840b.kt b/compiler/testData/codegen/box/builderInference/issues/kt63840b.kt
new file mode 100644
index 00000000000..729b7fbf269
--- /dev/null
+++ b/compiler/testData/codegen/box/builderInference/issues/kt63840b.kt
@@ -0,0 +1,33 @@
+// ISSUE: KT-63840
+
+// IGNORE_LIGHT_ANALYSIS
+// IGNORE_BACKEND_K1: ANY
+// REASON: red code (see corresponding diagnostic test)
+
+// IGNORE_BACKEND_K2: JVM_IR
+// REASON: run-time failure (java.lang.ClassCastException: TargetType cannot be cast to DifferentType @ Kt63840bKt$box$1.invoke)
+
+fun box(): String {
+    build {
+        if (true)
+            replaceTypeVariable(TargetType())
+        else
+            DifferentType()
+    }
+    return "OK"
+}
+
+
+
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = TargetType() as TV
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}
diff --git a/compiler/testData/codegen/box/builderInference/issues/kt63840c.kt b/compiler/testData/codegen/box/builderInference/issues/kt63840c.kt
new file mode 100644
index 00000000000..ddac18b31a6
--- /dev/null
+++ b/compiler/testData/codegen/box/builderInference/issues/kt63840c.kt
@@ -0,0 +1,33 @@
+// ISSUE: KT-63840
+
+// IGNORE_LIGHT_ANALYSIS
+// IGNORE_BACKEND_K1: ANY
+// REASON: red code (see corresponding diagnostic test)
+
+// IGNORE_BACKEND_K2: JVM_IR
+// REASON: run-time failure (java.lang.ClassCastException: TargetType cannot be cast to DifferentType @ Kt63840cKt$box$1.invoke)
+
+fun box(): String {
+    build {
+        when {
+            true -> replaceTypeVariable(TargetType())
+            else -> DifferentType()
+        }
+    }
+    return "OK"
+}
+
+
+
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = TargetType() as TV
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}
diff --git a/compiler/testData/diagnostics/tests/builderInference/issues/kt63840a.fir.kt b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840a.fir.kt
new file mode 100644
index 00000000000..79283de21f9
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840a.fir.kt
@@ -0,0 +1,32 @@
+// ISSUE: KT-63840
+// CHECK_TYPE_WITH_EXACT
+// WITH_STDLIB
+
+fun test() {
+    val buildee = build {
+        select(
+            replaceTypeVariable(TargetType()),
+            DifferentType()
+        )
+    }
+    // exact type equality check — turns unexpected compile-time behavior into red code
+    // considered to be non-user-reproducible code for the purposes of these tests
+    checkExactType<Buildee<TargetType>>(buildee)
+}
+
+
+
+
+fun <T> select(vararg values: T): T = values.first()
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = null!!
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}
diff --git a/compiler/testData/diagnostics/tests/builderInference/issues/kt63840a.kt b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840a.kt
new file mode 100644
index 00000000000..65d5f8df265
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840a.kt
@@ -0,0 +1,32 @@
+// ISSUE: KT-63840
+// CHECK_TYPE_WITH_EXACT
+// WITH_STDLIB
+
+fun test() {
+    val buildee = build {
+        select(
+            <!TYPE_MISMATCH("DifferentType; TargetType"), TYPE_MISMATCH("DifferentType; TargetType")!>replaceTypeVariable(TargetType())<!>,
+            DifferentType()
+        )
+    }
+    // exact type equality check — turns unexpected compile-time behavior into red code
+    // considered to be non-user-reproducible code for the purposes of these tests
+    checkExactType<Buildee<TargetType>>(buildee)
+}
+
+
+
+
+fun <T> select(vararg values: T): T = values.first()
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = null!!
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}
diff --git a/compiler/testData/diagnostics/tests/builderInference/issues/kt63840b.fir.kt b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840b.fir.kt
new file mode 100644
index 00000000000..b5641d28760
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840b.fir.kt
@@ -0,0 +1,29 @@
+// ISSUE: KT-63840
+// CHECK_TYPE_WITH_EXACT
+
+fun test() {
+    val buildee = build {
+        if (true)
+            replaceTypeVariable(TargetType())
+        else
+            DifferentType()
+    }
+    // exact type equality check — turns unexpected compile-time behavior into red code
+    // considered to be non-user-reproducible code for the purposes of these tests
+    checkExactType<Buildee<TargetType>>(buildee)
+}
+
+
+
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = null!!
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}
diff --git a/compiler/testData/diagnostics/tests/builderInference/issues/kt63840b.kt b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840b.kt
new file mode 100644
index 00000000000..7ca9c7d673a
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840b.kt
@@ -0,0 +1,29 @@
+// ISSUE: KT-63840
+// CHECK_TYPE_WITH_EXACT
+
+fun test() {
+    val buildee = build {
+        if (true)
+            <!TYPE_MISMATCH("DifferentType; TargetType"), TYPE_MISMATCH("DifferentType; TargetType")!>replaceTypeVariable(TargetType())<!>
+        else
+            DifferentType()
+    }
+    // exact type equality check — turns unexpected compile-time behavior into red code
+    // considered to be non-user-reproducible code for the purposes of these tests
+    checkExactType<Buildee<TargetType>>(buildee)
+}
+
+
+
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = null!!
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}
diff --git a/compiler/testData/diagnostics/tests/builderInference/issues/kt63840c.fir.kt b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840c.fir.kt
new file mode 100644
index 00000000000..e254c838b96
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840c.fir.kt
@@ -0,0 +1,29 @@
+// ISSUE: KT-63840
+// CHECK_TYPE_WITH_EXACT
+
+fun test() {
+    val buildee = build {
+        when {
+            true -> replaceTypeVariable(TargetType())
+            else -> DifferentType()
+        }
+    }
+    // exact type equality check — turns unexpected compile-time behavior into red code
+    // considered to be non-user-reproducible code for the purposes of these tests
+    checkExactType<Buildee<TargetType>>(buildee)
+}
+
+
+
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = null!!
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}
diff --git a/compiler/testData/diagnostics/tests/builderInference/issues/kt63840c.kt b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840c.kt
new file mode 100644
index 00000000000..386d5f234b2
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/builderInference/issues/kt63840c.kt
@@ -0,0 +1,29 @@
+// ISSUE: KT-63840
+// CHECK_TYPE_WITH_EXACT
+
+fun test() {
+    val buildee = build {
+        when {
+            true -> <!TYPE_MISMATCH("DifferentType; TargetType"), TYPE_MISMATCH("DifferentType; TargetType")!>replaceTypeVariable(TargetType())<!>
+            else -> DifferentType()
+        }
+    }
+    // exact type equality check — turns unexpected compile-time behavior into red code
+    // considered to be non-user-reproducible code for the purposes of these tests
+    checkExactType<Buildee<TargetType>>(buildee)
+}
+
+
+
+
+class TargetType
+class DifferentType
+
+class Buildee<TV> {
+    fun replaceTypeVariable(value: TV): TV { val temp = storage; storage = value; return temp }
+    private var storage: TV = null!!
+}
+
+fun <PTV> build(instructions: Buildee<PTV>.() -> Unit): Buildee<PTV> {
+    return Buildee<PTV>().apply(instructions)
+}