diff --git a/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosisCompilerTestFE10TestdataTestGenerated.java b/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosisCompilerTestFE10TestdataTestGenerated.java
index ab2683091f4..86c64d92cf8 100644
--- a/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosisCompilerTestFE10TestdataTestGenerated.java
+++ b/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosisCompilerTestFE10TestdataTestGenerated.java
@@ -32442,6 +32442,12 @@ public class DiagnosisCompilerTestFE10TestdataTestGenerated extends AbstractDiag
                 runTest("compiler/testData/diagnostics/tests/typeParameters/implicitNothingOnDelegates.kt");
             }
 
+            @Test
+            @TestMetadata("inProjectedDnnParameter.kt")
+            public void testInProjectedDnnParameter() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.kt");
+            }
+
             @Test
             @TestMetadata("kt42042.kt")
             public void testKt42042() throws Exception {
diff --git a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsTestGenerated.java b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsTestGenerated.java
index fdbe0580781..d18e89b3b9b 100644
--- a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsTestGenerated.java
@@ -32442,6 +32442,12 @@ public class FirOldFrontendDiagnosticsTestGenerated extends AbstractFirDiagnosti
                 runTest("compiler/testData/diagnostics/tests/typeParameters/implicitNothingOnDelegates.kt");
             }
 
+            @Test
+            @TestMetadata("inProjectedDnnParameter.kt")
+            public void testInProjectedDnnParameter() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.kt");
+            }
+
             @Test
             @TestMetadata("kt42042.kt")
             public void testKt42042() throws Exception {
diff --git a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsWithLightTreeTestGenerated.java b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsWithLightTreeTestGenerated.java
index 9bf3c872342..72eefa667c8 100644
--- a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsWithLightTreeTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsWithLightTreeTestGenerated.java
@@ -32442,6 +32442,12 @@ public class FirOldFrontendDiagnosticsWithLightTreeTestGenerated extends Abstrac
                 runTest("compiler/testData/diagnostics/tests/typeParameters/implicitNothingOnDelegates.kt");
             }
 
+            @Test
+            @TestMetadata("inProjectedDnnParameter.kt")
+            public void testInProjectedDnnParameter() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.kt");
+            }
+
             @Test
             @TestMetadata("kt42042.kt")
             public void testKt42042() throws Exception {
diff --git a/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.fir.kt b/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.fir.kt
new file mode 100644
index 00000000000..213f71d5abc
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.fir.kt
@@ -0,0 +1,30 @@
+// ISSUE: KT-54663
+// FILE: JavaAction.java
+import org.jetbrains.annotations.NotNull;
+
+public interface JavaAction<T> {
+    void execute(@NotNull T t);
+}
+
+// FILE: test.kt
+interface KotlinAction<T> {
+    fun execute(t: T & Any)
+}
+
+class A<T> {
+    fun checkJavaIn(element: T, action: JavaAction<in T>) {
+        action.execute(<!ARGUMENT_TYPE_MISMATCH!>element<!>) // OK in K1, type mismatch in K2
+    }
+
+    fun checkKotlinIn(element: T, action: KotlinAction<in T>) {
+        action.execute(<!ARGUMENT_TYPE_MISMATCH!>element<!>) // OK in K1, type mismatch in K2
+    }
+
+    fun checkJavaInv(element: T, action: JavaAction<T>) {
+        action.execute(<!ARGUMENT_TYPE_MISMATCH!>element<!>) // type mismatch in K1 and K2
+    }
+
+    fun checkKotlinInv(element: T, action: KotlinAction<T>) {
+        action.execute(<!ARGUMENT_TYPE_MISMATCH!>element<!>) // type mismatch in K1 and K2
+    }
+}
diff --git a/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.kt b/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.kt
new file mode 100644
index 00000000000..fbaea439463
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.kt
@@ -0,0 +1,30 @@
+// ISSUE: KT-54663
+// FILE: JavaAction.java
+import org.jetbrains.annotations.NotNull;
+
+public interface JavaAction<T> {
+    void execute(@NotNull T t);
+}
+
+// FILE: test.kt
+interface KotlinAction<T> {
+    fun execute(t: T & Any)
+}
+
+class A<T> {
+    fun checkJavaIn(element: T, action: JavaAction<in T>) {
+        action.execute(element) // OK in K1, type mismatch in K2
+    }
+
+    fun checkKotlinIn(element: T, action: KotlinAction<in T>) {
+        action.execute(element) // OK in K1, type mismatch in K2
+    }
+
+    fun checkJavaInv(element: T, action: JavaAction<T>) {
+        action.execute(<!TYPE_MISMATCH!>element<!>) // type mismatch in K1 and K2
+    }
+
+    fun checkKotlinInv(element: T, action: KotlinAction<T>) {
+        action.execute(<!TYPE_MISMATCH!>element<!>) // type mismatch in K1 and K2
+    }
+}
diff --git a/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.txt b/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.txt
new file mode 100644
index 00000000000..71f70aacaaf
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.txt
@@ -0,0 +1,26 @@
+package
+
+public final class A</*0*/ T> {
+    public constructor A</*0*/ T>()
+    public final fun checkJavaIn(/*0*/ element: T, /*1*/ action: JavaAction<in T>): kotlin.Unit
+    public final fun checkJavaInv(/*0*/ element: T, /*1*/ action: JavaAction<T>): kotlin.Unit
+    public final fun checkKotlinIn(/*0*/ element: T, /*1*/ action: KotlinAction<in T>): kotlin.Unit
+    public final fun checkKotlinInv(/*0*/ element: T, /*1*/ action: KotlinAction<T>): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
+
+public interface JavaAction</*0*/ T : kotlin.Any!> {
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public abstract fun execute(/*0*/ @org.jetbrains.annotations.NotNull t: T & Any): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
+
+public interface KotlinAction</*0*/ T> {
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public abstract fun execute(/*0*/ t: T & Any): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/tests-common-new/tests-gen/org/jetbrains/kotlin/test/runners/DiagnosticTestGenerated.java b/compiler/tests-common-new/tests-gen/org/jetbrains/kotlin/test/runners/DiagnosticTestGenerated.java
index 0cb8bb07ee9..0615dbdfa60 100644
--- a/compiler/tests-common-new/tests-gen/org/jetbrains/kotlin/test/runners/DiagnosticTestGenerated.java
+++ b/compiler/tests-common-new/tests-gen/org/jetbrains/kotlin/test/runners/DiagnosticTestGenerated.java
@@ -32532,6 +32532,12 @@ public class DiagnosticTestGenerated extends AbstractDiagnosticTest {
                 runTest("compiler/testData/diagnostics/tests/typeParameters/implicitNothingOnDelegates.kt");
             }
 
+            @Test
+            @TestMetadata("inProjectedDnnParameter.kt")
+            public void testInProjectedDnnParameter() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/typeParameters/inProjectedDnnParameter.kt");
+            }
+
             @Test
             @TestMetadata("kt42042.kt")
             public void testKt42042() throws Exception {