diff --git a/plugins/annotation-processing/annotation-processing.iml b/plugins/annotation-processing/annotation-processing.iml
index 81a78835658..e6933c9078a 100644
--- a/plugins/annotation-processing/annotation-processing.iml
+++ b/plugins/annotation-processing/annotation-processing.iml
@@ -14,5 +14,6 @@
     <orderEntry type="module" module-name="light-classes" />
     <orderEntry type="module" module-name="util" />
     <orderEntry type="library" name="kotlin-runtime" level="project" />
+    <orderEntry type="module" module-name="cli" />
   </component>
 </module>
\ No newline at end of file
diff --git a/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/AnnotationProcessingExtension.kt b/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/AnnotationProcessingExtension.kt
index 000348d1212..f4c6f8aaa62 100644
--- a/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/AnnotationProcessingExtension.kt
+++ b/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/AnnotationProcessingExtension.kt
@@ -17,6 +17,7 @@
 package org.jetbrains.kotlin.annotation
 
 import com.intellij.openapi.project.Project
+import com.intellij.openapi.vfs.StandardFileSystems
 import com.intellij.psi.*
 import com.intellij.psi.search.GlobalSearchScope
 import org.jetbrains.kotlin.analyzer.AnalysisResult
@@ -35,8 +36,10 @@ import java.util.*
 import javax.annotation.processing.Processor
 
 class AnnotationProcessingExtension(
-        val generatedOutputDir: File,
-        val annotationProcessingClasspath: List<String>
+        val generatedSourcesOutputDir: File,
+        val classesOutputDir: File,
+        val annotationProcessingClasspath: List<String>,
+        val javaSourceRoots: List<File>
 ) : AnalysisCompletedHandlerExtension {
     private var annotationProcessingComplete = false
 
@@ -56,12 +59,25 @@ class AnnotationProcessingExtension(
         val analysisContext = AnalysisContext(hashMapOf())
         analysisContext.analyzeFiles(files)
         
+        val psiManager = PsiManager.getInstance(project)
+        for (javaSourceRoot in javaSourceRoots) {
+            javaSourceRoot.walk().filter { it.isFile && it.extension == "java" }.forEach {
+                val vFile = StandardFileSystems.local().findFileByPath(it.absolutePath)
+                if (vFile != null) {
+                    val javaFile = psiManager.findFile(vFile) as? PsiJavaFile
+                    if (javaFile != null) {
+                        analysisContext.analyzeFile(javaFile)
+                    }
+                }
+            }
+        }
+        
         val options = emptyMap<String, String>()
         
         val javaPsiFacade = JavaPsiFacade.getInstance(project)
         val projectScope = GlobalSearchScope.projectScope(project)
         
-        val filer = KotlinFiler(generatedOutputDir)
+        val filer = KotlinFiler(generatedSourcesOutputDir, classesOutputDir)
         val messages = KotlinMessager()
         val types = KotlinTypes(javaPsiFacade, PsiManager.getInstance(project), projectScope)
         val elements = KotlinElements(javaPsiFacade, projectScope)
@@ -69,7 +85,6 @@ class AnnotationProcessingExtension(
         val processingEnvironment = KotlinProcessingEnvironment(elements, types, messages, options, filer)
         processors.forEach { it.init(processingEnvironment) }
         
-        
         // Round 1
         val round1Environment = KotlinRoundEnvironment(analysisContext)
         for (processor in processors) {
@@ -97,7 +112,7 @@ class AnnotationProcessingExtension(
         }
 
         annotationProcessingComplete = true
-        return AnalysisResult.RetryWithAdditionalJavaRoots(bindingContext, module, listOf(generatedOutputDir))
+        return AnalysisResult.RetryWithAdditionalJavaRoots(bindingContext, module, listOf(generatedSourcesOutputDir))
     }
     
     private fun loadAnnotationProcessors(classpath: List<String>): List<Processor> {
@@ -128,6 +143,10 @@ private fun AnalysisContext.analyzeFile(file: KtFile) {
     }
 }
 
+private fun AnalysisContext.analyzeFile(file: PsiJavaFile) {
+    file.classes.forEach { analyzeDeclaration(it) }
+}
+
 private fun AnalysisContext.analyzeDeclaration(declaration: PsiElement) {
     if (declaration !is PsiModifierListOwner) return
     
diff --git a/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/AnnotationProcessingPlugin.kt b/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/AnnotationProcessingPlugin.kt
index 1e25d5486bc..753bffd7d0f 100644
--- a/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/AnnotationProcessingPlugin.kt
+++ b/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/AnnotationProcessingPlugin.kt
@@ -18,18 +18,23 @@ package org.jetbrains.kotlin.annotation.processing
 
 import com.intellij.mock.MockProject
 import org.jetbrains.kotlin.annotation.AnnotationProcessingExtension
+import org.jetbrains.kotlin.cli.jvm.config.JavaSourceRoot
 import org.jetbrains.kotlin.compiler.plugin.CliOption
 import org.jetbrains.kotlin.compiler.plugin.CliOptionProcessingException
 import org.jetbrains.kotlin.compiler.plugin.CommandLineProcessor
 import org.jetbrains.kotlin.compiler.plugin.ComponentRegistrar
 import org.jetbrains.kotlin.config.CompilerConfiguration
 import org.jetbrains.kotlin.config.CompilerConfigurationKey
+import org.jetbrains.kotlin.config.JVMConfigurationKeys
 import org.jetbrains.kotlin.resolve.jvm.extensions.AnalysisCompletedHandlerExtension
 import java.io.File
 
 object AnnotationProcessingConfigurationKeys {
     val GENERATED_OUTPUT_DIR: CompilerConfigurationKey<String> =
             CompilerConfigurationKey.create<String>("generated files output directory")
+
+    val CLASS_FILES_OUTPUT_DIR: CompilerConfigurationKey<String> =
+            CompilerConfigurationKey.create<String>("class files output directory")
     
     val ANNOTATION_PROCESSOR_CLASSPATH: CompilerConfigurationKey<List<String>> =
             CompilerConfigurationKey.create<List<String>>("annotation processor classpath")
@@ -40,7 +45,10 @@ class AnnotationProcessingCommandLineProcessor : CommandLineProcessor {
         val ANNOTATION_PROCESSING_COMPILER_PLUGIN_ID: String = "org.jetbrains.kotlin.kapt2"
         
         val GENERATED_OUTPUT_DIR_OPTION: CliOption =
-                CliOption("generated", "<path>", "Output path for generated files", required = false)
+                CliOption("generated", "<path>", "Output path for the generated files", required = false)
+
+        val CLASS_FILES_OUTPUT_DIR_OPTION: CliOption =
+                CliOption("classes", "<path>", "Output path for the class files", required = false)
 
         val ANNOTATION_PROCESSOR_CLASSPATH_OPTION: CliOption =
                 CliOption("apclasspath", "<classpath>", "Annotation processor classpath", 
@@ -60,6 +68,7 @@ class AnnotationProcessingCommandLineProcessor : CommandLineProcessor {
                 configuration.put(AnnotationProcessingConfigurationKeys.ANNOTATION_PROCESSOR_CLASSPATH, paths)
             }
             GENERATED_OUTPUT_DIR_OPTION -> configuration.put(AnnotationProcessingConfigurationKeys.GENERATED_OUTPUT_DIR, value)
+            CLASS_FILES_OUTPUT_DIR_OPTION -> configuration.put(AnnotationProcessingConfigurationKeys.CLASS_FILES_OUTPUT_DIR, value)
             else -> throw CliOptionProcessingException("Unknown option: ${option.name}")
         }
     }
@@ -73,7 +82,13 @@ class AnnotationProcessingComponentRegistrar : ComponentRegistrar {
         val generatedOutputDirFile = File(generatedOutputDir)
         generatedOutputDirFile.mkdirs()
         
-        val annotationProcessingExtension = AnnotationProcessingExtension(generatedOutputDirFile, classpath)
+        val javaRoots = configuration[JVMConfigurationKeys.CONTENT_ROOTS]
+                ?.filterIsInstance<JavaSourceRoot>()?.map { it.file } ?: emptyList()
+        
+        val classesOutputDir = File(configuration.get(AnnotationProcessingConfigurationKeys.CLASS_FILES_OUTPUT_DIR) 
+                               ?: configuration[JVMConfigurationKeys.MODULES]!!.first().getOutputDirectory()) 
+        
+        val annotationProcessingExtension = AnnotationProcessingExtension(generatedOutputDirFile, classesOutputDir, classpath, javaRoots)
         AnalysisCompletedHandlerExtension.registerExtension(project, annotationProcessingExtension)
     }
 }
\ No newline at end of file
diff --git a/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/impl/KotlinFiler.kt b/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/impl/KotlinFiler.kt
index 8398785203a..59392f1b1bd 100644
--- a/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/impl/KotlinFiler.kt
+++ b/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/impl/KotlinFiler.kt
@@ -22,8 +22,9 @@ import javax.lang.model.element.Element
 import javax.tools.FileObject
 import javax.tools.JavaFileManager
 import javax.tools.JavaFileObject
+import javax.tools.StandardLocation
 
-class KotlinFiler(val generatedDir: File) : Filer {
+class KotlinFiler(val generatedSourceDir: File, val classesOutputDir: File) : Filer {
     private companion object {
         val PACKAGE_INFO_SUFFIX = ".packageInfo"
     }
@@ -33,7 +34,7 @@ class KotlinFiler(val generatedDir: File) : Filer {
     private fun createDotGeneratedIfNeeded() {
         if (!dotGeneratedGenerated) {
             dotGeneratedGenerated = true
-            File(generatedDir, ".generated").writeText("Generated by kapt2")
+            File(generatedSourceDir, ".generated").writeText("Generated by kapt2")
         }
     }
     
@@ -46,7 +47,7 @@ class KotlinFiler(val generatedDir: File) : Filer {
         
         val packageName = fqName.substringBeforeLast('.')
         
-        val packageDir = File(generatedDir, packageName.replace('.', '/'))
+        val packageDir = File(generatedSourceDir, packageName.replace('.', '/'))
         packageDir.mkdirs()
         
         val fileName = fqName.substringAfterLast('.') + (if (isPackageInfo) PACKAGE_INFO_SUFFIX else extension)
@@ -62,12 +63,23 @@ class KotlinFiler(val generatedDir: File) : Filer {
     }
 
     override fun createResource(
-            location: JavaFileManager.Location?,
+            location: JavaFileManager.Location,
             pkg: CharSequence,
             relativeName: CharSequence,
             vararg originatingElements: Element?
     ): FileObject? {
-        throw UnsupportedOperationException()
+        val baseDir = when (location) {
+            StandardLocation.CLASS_OUTPUT -> classesOutputDir
+            StandardLocation.SOURCE_OUTPUT -> generatedSourceDir
+            else -> throw IllegalArgumentException("Location is not supported: $location (${location.name})")
+        }
+        
+        val targetDir = File(baseDir, pkg.toString().replace('.', '/'))
+        targetDir.mkdirs()
+        
+        val targetFile = File(targetDir, relativeName.toString())
+        
+        return KotlinFileObject(targetFile)
     }
 
     override fun createClassFile(name: CharSequence, vararg originatingElements: Element?): JavaFileObject {
diff --git a/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/impl/KotlinJavaFileObject.kt b/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/impl/KotlinJavaFileObject.kt
index 962522223d7..b8bcc67f68e 100644
--- a/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/impl/KotlinJavaFileObject.kt
+++ b/plugins/annotation-processing/src/org/jetbrains/kotlin/annotation/processing/impl/KotlinJavaFileObject.kt
@@ -17,9 +17,30 @@
 package org.jetbrains.kotlin.annotation.processing.impl
 
 import java.io.File
+import javax.tools.FileObject
 import javax.tools.JavaFileObject
 
-class KotlinJavaFileObject(val file: File) : JavaFileObject {
+class KotlinJavaFileObject(file: File) : KotlinAbstractFileObject(file), JavaFileObject {
+    //TODO
+    override fun isNameCompatible(simpleName: String, kind: JavaFileObject.Kind) = true
+
+    override fun getKind() = when (file.extension) {
+        "class" -> JavaFileObject.Kind.CLASS
+        "java" -> JavaFileObject.Kind.SOURCE
+        "html" -> JavaFileObject.Kind.HTML
+        else -> JavaFileObject.Kind.OTHER
+    }
+
+    //TODO
+    override fun getAccessLevel() = null
+
+    //TODO
+    override fun getNestingKind() = null
+}
+
+class KotlinFileObject(file: File) : KotlinAbstractFileObject(file)
+
+abstract class KotlinAbstractFileObject(val file: File) : FileObject {
     override fun openOutputStream() = file.outputStream()
 
     override fun getName() = file.name
@@ -39,20 +60,4 @@ class KotlinJavaFileObject(val file: File) : JavaFileObject {
     override fun openReader(ignoreEncodingErrors: Boolean) = file.reader()
 
     override fun delete() = file.delete()
-    
-    //TODO
-    override fun isNameCompatible(simpleName: String, kind: JavaFileObject.Kind) = true
-
-    override fun getKind() = when (file.extension) {
-        "class" -> JavaFileObject.Kind.CLASS
-        "java" -> JavaFileObject.Kind.SOURCE
-        "html" -> JavaFileObject.Kind.HTML
-        else -> JavaFileObject.Kind.OTHER
-    }
-
-    //TODO
-    override fun getAccessLevel() = null
-    
-    //TODO
-    override fun getNestingKind() = null
 }
\ No newline at end of file