diff --git a/compiler/backend/src/org/jetbrains/jet/codegen/ClosureCodegen.java b/compiler/backend/src/org/jetbrains/jet/codegen/ClosureCodegen.java
index 1de993847c0..46a4c4be556 100644
--- a/compiler/backend/src/org/jetbrains/jet/codegen/ClosureCodegen.java
+++ b/compiler/backend/src/org/jetbrains/jet/codegen/ClosureCodegen.java
@@ -9,6 +9,7 @@ import com.intellij.psi.PsiElement;
 import org.jetbrains.jet.lang.descriptors.*;
 import org.jetbrains.jet.lang.descriptors.annotations.AnnotationDescriptor;
 import org.jetbrains.jet.lang.psi.JetDeclarationWithBody;
+import org.jetbrains.jet.lang.psi.JetElement;
 import org.jetbrains.jet.lang.psi.JetExpression;
 import org.jetbrains.jet.lang.psi.JetFunctionLiteralExpression;
 import org.jetbrains.jet.lang.resolve.BindingContext;
@@ -139,6 +140,10 @@ public class ClosureCodegen extends ObjectOrClosureCodegen {
                 final EnclosedValueDescriptor valueDescriptor = closure.get(descriptor);
                 answer.addArg(valueDescriptor.getOuterValue());
             }
+            else if(descriptor instanceof NamedFunctionDescriptor && descriptor.getContainingDeclaration() instanceof FunctionDescriptor) {
+                final EnclosedValueDescriptor valueDescriptor = closure.get(descriptor);
+                answer.addArg(valueDescriptor.getOuterValue());
+            }
         }
         return answer;
     }
@@ -230,12 +235,16 @@ public class ClosureCodegen extends ObjectOrClosureCodegen {
         int argCount = captureThis ? 1 : 0;
         argCount += (captureReceiver != null ? 1 : 0);
 
-        ArrayList<VariableDescriptor> variableDescriptors = new ArrayList<VariableDescriptor>();
+        ArrayList<DeclarationDescriptor> variableDescriptors = new ArrayList<DeclarationDescriptor>();
         
         for (DeclarationDescriptor descriptor : closure.keySet()) {
             if(descriptor instanceof VariableDescriptor && !(descriptor instanceof PropertyDescriptor)) {
                 argCount++;
-                variableDescriptors.add((VariableDescriptor) descriptor);
+                variableDescriptors.add(descriptor);
+            }
+            else if(descriptor instanceof NamedFunctionDescriptor && descriptor.getContainingDeclaration() instanceof FunctionDescriptor) {
+                argCount++;
+                variableDescriptors.add(descriptor);
             }
             else if(descriptor instanceof FunctionDescriptor) {
                 assert captureReceiver != null;
@@ -259,6 +268,10 @@ public class ClosureCodegen extends ObjectOrClosureCodegen {
                 final Type type = sharedVarType != null ? sharedVarType : state.getTypeMapper().mapType(((VariableDescriptor) descriptor).getOutType());
                 argTypes[i++] = type;
             }
+            else if(descriptor instanceof NamedFunctionDescriptor && descriptor.getContainingDeclaration() instanceof FunctionDescriptor) {
+                final Type type = Type.getObjectType(state.getTypeMapper().classNameForAnonymousClass((JetElement) bindingContext.get(BindingContext.DESCRIPTOR_TO_DECLARATION, descriptor)));
+                argTypes[i++] = type;
+            }
         }
 
         final Method constructor = new Method("<init>", Type.VOID_TYPE, argTypes);
@@ -286,7 +299,7 @@ public class ClosureCodegen extends ObjectOrClosureCodegen {
                         fieldName = "receiver$0";
                     }
                     else {
-                        VariableDescriptor removed = variableDescriptors.remove(0);
+                        DeclarationDescriptor removed = variableDescriptors.remove(0);
                         fieldName = "$" + removed.getName();
                     }
                 }
diff --git a/compiler/backend/src/org/jetbrains/jet/codegen/ObjectOrClosureCodegen.java b/compiler/backend/src/org/jetbrains/jet/codegen/ObjectOrClosureCodegen.java
index 6dd8f626125..2c6b7065a30 100644
--- a/compiler/backend/src/org/jetbrains/jet/codegen/ObjectOrClosureCodegen.java
+++ b/compiler/backend/src/org/jetbrains/jet/codegen/ObjectOrClosureCodegen.java
@@ -2,6 +2,8 @@ package org.jetbrains.jet.codegen;
 
 import org.jetbrains.jet.lang.descriptors.*;
 import org.jetbrains.jet.lang.psi.JetDelegatorToSuperCall;
+import org.jetbrains.jet.lang.psi.JetElement;
+import org.jetbrains.jet.lang.resolve.BindingContext;
 import org.objectweb.asm.Opcodes;
 import org.objectweb.asm.Type;
 
@@ -58,6 +60,28 @@ public class ObjectOrClosureCodegen {
             return innerValue;
         }
 
+        if(d instanceof NamedFunctionDescriptor && d.getContainingDeclaration() instanceof FunctionDescriptor) {
+            FunctionDescriptor vd = (FunctionDescriptor) d;
+
+            final int idx = exprContext.lookupLocal(vd);
+            if (idx < 0) return null;
+
+            JetElement expression = (JetElement) state.getBindingContext().get(BindingContext.DESCRIPTOR_TO_DECLARATION, vd);
+            String cn = state.getTypeMapper().classNameForAnonymousClass(expression);
+            Type localType = Type.getObjectType(cn);
+
+            StackValue outerValue = StackValue.local(idx, localType);
+            final String fieldName = "$" + vd.getName();
+            StackValue innerValue = StackValue.field(localType, name, fieldName, false);
+
+            cv.newField(null, Opcodes.ACC_PUBLIC, fieldName, localType.getDescriptor(), null, null);
+
+            answer = new EnclosedValueDescriptor(d, innerValue, outerValue);
+            closure.put(d, answer);
+
+            return innerValue;
+        }
+
         if(d instanceof FunctionDescriptor) {
             // we are looking for receiver
             FunctionDescriptor fd = (FunctionDescriptor) d;
diff --git a/compiler/testData/codegen/functions/localFunction.kt b/compiler/testData/codegen/functions/localFunction.kt
index be1e98e6dde..9ec49ecbeda 100644
--- a/compiler/testData/codegen/functions/localFunction.kt
+++ b/compiler/testData/codegen/functions/localFunction.kt
@@ -1,5 +1,12 @@
+fun IntRange.forEach(body : (Int) -> Unit) {
+    for(i in this) {
+        body(i)
+    }
+}
+
 fun box() : String {
     var seed = 0
+
     fun local(x: Int) {
         fun deep() {
             seed += x
@@ -26,6 +33,14 @@ fun box() : String {
         (-i).iter()
     }
 
+    fun local2(y: Int) {
+        seed += y
+    }
 
-    return if(seed == 15) "OK" else seed.toString()
+    (1..5).forEach {
+            local2(it)
+    }
+
+
+    return if(seed == 30) "OK" else seed.toString()
 }
\ No newline at end of file