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 e5c111460fc..acf3ec4799e 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
@@ -14189,6 +14189,12 @@ public class FirOldFrontendDiagnosticsTestGenerated extends AbstractFirDiagnosti
                 public void testSubstitutionIntoInnerClass() throws Exception {
                     runTest("compiler/testData/diagnostics/tests/inference/substitutions/substitutionIntoInnerClass.kt");
                 }
+
+                @Test
+                @TestMetadata("substitutionOfTypeEnhancement.kt")
+                public void testSubstitutionOfTypeEnhancement() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/inference/substitutions/substitutionOfTypeEnhancement.kt");
+                }
             }
 
             @Nested
diff --git a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
index f637d19717a..9a7aed50205 100644
--- a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
+++ b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
@@ -32,6 +32,19 @@ interface NewTypeSubstitutor : TypeSubstitutorMarker {
         return null
     }
 
+    private fun substituteTypeEnhancement(
+        enhancementType: KotlinType,
+        keepAnnotation: Boolean,
+        runCapturedChecks: Boolean
+    ) = when (val type = enhancementType.unwrap()) {
+        is SimpleType -> substitute(type, keepAnnotation, runCapturedChecks) ?: enhancementType
+        is FlexibleType -> {
+            val substitutedLowerBound = substitute(type.lowerBound, keepAnnotation, runCapturedChecks) ?: type.lowerBound
+            val substitutedUpperBound = substitute(type.upperBound, keepAnnotation, runCapturedChecks) ?: type.upperBound
+            KotlinTypeFactory.flexibleType(substitutedLowerBound.lowerIfFlexible(), substitutedUpperBound.upperIfFlexible())
+        }
+    }
+
     private fun substitute(type: UnwrappedType, keepAnnotation: Boolean, runCapturedChecks: Boolean): UnwrappedType? =
         when (type) {
             is SimpleType -> substitute(type, keepAnnotation, runCapturedChecks)
@@ -40,6 +53,9 @@ interface NewTypeSubstitutor : TypeSubstitutorMarker {
             } else {
                 val lowerBound = substitute(type.lowerBound, keepAnnotation, runCapturedChecks)
                 val upperBound = substitute(type.upperBound, keepAnnotation, runCapturedChecks)
+                val enhancement =
+                    if (type is TypeWithEnhancement) substituteTypeEnhancement(type, keepAnnotation, runCapturedChecks) else null
+
                 if (lowerBound == null && upperBound == null) {
                     null
                 } else {
@@ -47,7 +63,7 @@ interface NewTypeSubstitutor : TypeSubstitutorMarker {
                     KotlinTypeFactory.flexibleType(
                         lowerBound?.lowerIfFlexible() ?: type.lowerBound,
                         upperBound?.upperIfFlexible() ?: type.upperBound
-                    ).inheritEnhancement(type)
+                    ).wrapEnhancement(enhancement)
                 }
             }
         }
diff --git a/compiler/testData/diagnostics/tests/inference/substitutions/substitutionOfTypeEnhancement.kt b/compiler/testData/diagnostics/tests/inference/substitutions/substitutionOfTypeEnhancement.kt
new file mode 100644
index 00000000000..4119a190bc8
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/substitutions/substitutionOfTypeEnhancement.kt
@@ -0,0 +1,55 @@
+// FIR_IDENTICAL
+// FULL_JDK
+// WITH_RUNTIME
+// WITH_REFLECT
+
+// FILE: NonNullApi.java
+
+import java.lang.annotation.Documented;
+import java.lang.annotation.ElementType;
+import java.lang.annotation.Retention;
+import java.lang.annotation.RetentionPolicy;
+import java.lang.annotation.Target;
+
+@Target({ElementType.TYPE, ElementType.PACKAGE})
+@javax.annotation.Nonnull
+@javax.annotation.meta.TypeQualifierDefault({ElementType.METHOD, ElementType.PARAMETER})
+@Documented
+@Retention(RetentionPolicy.RUNTIME)
+public @interface NonNullApi { }
+
+// FILE: Task2.java
+
+public class Task2 implements Task {
+    void foo() {}
+}
+
+// FILE: Test.java
+
+public class Test {
+    <T extends Task> void register(Class<T> var2, Foo<? super T> var3) throws IllegalAccessException, InstantiationException {
+        var3.execute(var2.newInstance());
+    }
+}
+
+// FILE: Foo.java
+
+@NonNullApi
+public interface Foo<T> {
+    void execute(T t);
+}
+
+// FILE: Task.java
+
+public interface Task {}
+
+// FILE: main.kt
+
+fun main() {
+    Test().register(Task2::class.java) { // before the fix, type parameter's type leaked here (type of `it` is `T`)
+        it.foo()
+        it.apply {
+            foo()
+        }
+    }
+}
diff --git a/compiler/testData/diagnostics/tests/inference/substitutions/substitutionOfTypeEnhancement.txt b/compiler/testData/diagnostics/tests/inference/substitutions/substitutionOfTypeEnhancement.txt
new file mode 100644
index 00000000000..ff32d607d69
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/substitutions/substitutionOfTypeEnhancement.txt
@@ -0,0 +1,39 @@
+package
+
+public fun main(): kotlin.Unit
+
+@NonNullApi public interface Foo</*0*/ T : kotlin.Any!> {
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public abstract fun execute(/*0*/ t: T!): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
+
+@kotlin.annotation.Target(allowedTargets = {AnnotationTarget.CLASS, AnnotationTarget.FILE}) @javax.annotation.Nonnull /* annotation class not found */ @javax.annotation.meta.TypeQualifierDefault(value = {ElementType.METHOD, ElementType.PARAMETER}) /* annotation class not found */ @kotlin.annotation.MustBeDocumented @kotlin.annotation.Retention(value = AnnotationRetention.RUNTIME) public final annotation class NonNullApi : kotlin.Annotation {
+    public constructor NonNullApi()
+    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 Task {
+    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 open class Task2 : Task {
+    public constructor Task2()
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public/*package*/ open fun foo(): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
+
+public open class Test {
+    public constructor Test()
+    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/*package*/ open fun </*0*/ T : Task!> register(/*0*/ var2: java.lang.Class<T!>!, /*1*/ var3: Foo<in T!>!): kotlin.Unit
+    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 06d706e40c3..74f5057f586 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
@@ -14195,6 +14195,12 @@ public class DiagnosticTestGenerated extends AbstractDiagnosticTest {
                 public void testSubstitutionIntoInnerClass() throws Exception {
                     runTest("compiler/testData/diagnostics/tests/inference/substitutions/substitutionIntoInnerClass.kt");
                 }
+
+                @Test
+                @TestMetadata("substitutionOfTypeEnhancement.kt")
+                public void testSubstitutionOfTypeEnhancement() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/inference/substitutions/substitutionOfTypeEnhancement.kt");
+                }
             }
 
             @Nested