diff --git a/compiler/testData/constraintSystem/severalVariables/recursive/implicitlyRecursive.bounds b/compiler/testData/constraintSystem/severalVariables/recursive/implicitlyRecursive.bounds
new file mode 100644
index 00000000000..b3a8ecb359c
--- /dev/null
+++ b/compiler/testData/constraintSystem/severalVariables/recursive/implicitlyRecursive.bounds
@@ -0,0 +1,26 @@
+VARIABLES T P E
+
+SUBTYPE T Producer<P>
+SUBTYPE P Producer<E>
+SUBTYPE E Producer<P>
+
+type parameter bounds:
+T <: Producer<P>*, <: Producer<Producer<E>>*, <: Producer<Producer<Producer<P>>>*
+P <: Producer<E>*
+E <: Producer<P>*
+
+status:
+-hasCannotCaptureTypesError: false
+-hasConflictingConstraints: false
+-hasContradiction: false
+-hasErrorInConstrainingTypes: false
+-hasTypeConstructorMismatch: false
+-hasTypeInferenceIncorporationError: false
+-hasUnknownParameters: true
+-hasViolatedUpperBound: false
+-isSuccessful: false
+
+result:
+T=???
+P=???
+E=???
diff --git a/compiler/testData/constraintSystem/severalVariables/recursive/implicitlyRecursive.constraints b/compiler/testData/constraintSystem/severalVariables/recursive/implicitlyRecursive.constraints
new file mode 100644
index 00000000000..da4f2840fc4
--- /dev/null
+++ b/compiler/testData/constraintSystem/severalVariables/recursive/implicitlyRecursive.constraints
@@ -0,0 +1,5 @@
+VARIABLES T P E
+
+SUBTYPE T Producer<P>
+SUBTYPE P Producer<E>
+SUBTYPE E Producer<P>
diff --git a/compiler/tests/org/jetbrains/kotlin/resolve/constraintSystem/ConstraintSystemTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/resolve/constraintSystem/ConstraintSystemTestGenerated.java
index 8186137e300..1557eceb704 100644
--- a/compiler/tests/org/jetbrains/kotlin/resolve/constraintSystem/ConstraintSystemTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/resolve/constraintSystem/ConstraintSystemTestGenerated.java
@@ -441,6 +441,12 @@ public class ConstraintSystemTestGenerated extends AbstractConstraintSystemTest
                 JetTestUtils.assertAllTestsPresentByMetadata(this.getClass(), new File("compiler/testData/constraintSystem/severalVariables/recursive"), Pattern.compile("^(.+)\\.constraints$"), true);
             }
 
+            @TestMetadata("implicitlyRecursive.constraints")
+            public void testImplicitlyRecursive() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/constraintSystem/severalVariables/recursive/implicitlyRecursive.constraints");
+                doTest(fileName);
+            }
+
             @TestMetadata("mutuallyRecursive.constraints")
             public void testMutuallyRecursive() throws Exception {
                 String fileName = JetTestUtils.navigationMetadata("compiler/testData/constraintSystem/severalVariables/recursive/mutuallyRecursive.constraints");
diff --git a/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/ConstraintSystemImpl.kt b/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/ConstraintSystemImpl.kt
index bb55bb1093a..d424a67d23b 100644
--- a/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/ConstraintSystemImpl.kt
+++ b/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/ConstraintSystemImpl.kt
@@ -346,9 +346,10 @@ public class ConstraintSystemImpl : ConstraintSystem {
             typeVariable: TypeParameterDescriptor,
             constrainingType: JetType,
             kind: TypeBounds.BoundKind,
-            position: ConstraintPosition
+            position: ConstraintPosition,
+            derivedFrom: Set<TypeParameterDescriptor> = emptySet()
     ) {
-        val bound = Bound(typeVariable, constrainingType, kind, position, constrainingType.isProper())
+        val bound = Bound(typeVariable, constrainingType, kind, position, constrainingType.isProper(), derivedFrom)
         val typeBounds = getTypeBounds(typeVariable)
         if (typeBounds.bounds.contains(bound)) return
 
diff --git a/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/TypeBounds.kt b/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/TypeBounds.kt
index bee0e0ab739..78d7963dd8f 100644
--- a/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/TypeBounds.kt
+++ b/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/TypeBounds.kt
@@ -49,7 +49,9 @@ public trait TypeBounds {
             public val constrainingType: JetType,
             public val kind: BoundKind,
             public val position: ConstraintPosition,
-            public val isProper: Boolean = true
+            public val isProper: Boolean,
+            // to prevent infinite recursion in incorporation we store the variables that was substituted to derive this bound
+            public val derivedFrom: Set<TypeParameterDescriptor>
     ) {
         override fun equals(other: Any?): Boolean {
             if (this === other) return true
diff --git a/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/TypeBoundsImpl.kt b/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/TypeBoundsImpl.kt
index cd640e14e55..cc84ca284fb 100644
--- a/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/TypeBoundsImpl.kt
+++ b/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/TypeBoundsImpl.kt
@@ -194,7 +194,8 @@ fun Collection<Bound>.substitute(substituteTypeVariable: (TypeParameterDescripto
             it.constrainingType
         }
         substitutedType?.let { type ->
-            Bound(substituteTypeVariable(it.typeVariable) ?: it.typeVariable, type, it.kind, it.position, it.isProper)
+            Bound(substituteTypeVariable(it.typeVariable) ?: it.typeVariable, type, it.kind, it.position, it.isProper,
+                  it.derivedFrom.map { substituteTypeVariable(it) ?: it }.toSet())
         }
     }.filterNotNull()
 }
diff --git a/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/constraintIncorporation.kt b/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/constraintIncorporation.kt
index e39eab674cd..8066ab7ea18 100644
--- a/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/constraintIncorporation.kt
+++ b/core/descriptors/src/org/jetbrains/kotlin/resolve/calls/inference/constraintIncorporation.kt
@@ -28,6 +28,7 @@ import org.jetbrains.kotlin.types.*
 import org.jetbrains.kotlin.types.Variance.INVARIANT
 import org.jetbrains.kotlin.types.typeUtil.getNestedTypeArguments
 import org.jetbrains.kotlin.types.typesApproximation.approximateCapturedTypes
+import java.util.*
 
 fun ConstraintSystemImpl.incorporateBound(newBound: Bound) {
     val typeVariable = newBound.typeVariable
@@ -92,9 +93,14 @@ private fun ConstraintSystemImpl.generateNewBound(bound: Bound, substitution: Bo
     fun addNewBound(newConstrainingType: JetType, newBoundKind: BoundKind) {
         // We don't generate new recursive constraints
         val nestedTypeVariables = newConstrainingType.getNestedTypeVariables()
-        if (nestedTypeVariables.contains(bound.typeVariable) || nestedTypeVariables.contains(substitution.typeVariable)) return
+        if (nestedTypeVariables.contains(bound.typeVariable)) return
 
-        addBound(bound.typeVariable, newConstrainingType, newBoundKind, position)
+        // We don't generate constraint if a type variable was substituted twice
+        val derivedFrom = HashSet(bound.derivedFrom + substitution.derivedFrom)
+        if (derivedFrom.contains(substitution.typeVariable)) return
+
+        derivedFrom.add(substitution.typeVariable)
+        addBound(bound.typeVariable, newConstrainingType, newBoundKind, position, derivedFrom)
     }
 
     if (substitution.kind == EXACT_BOUND) {