diff --git a/compiler/frontend.java/src/org/jetbrains/kotlin/load/kotlin/moduleVisibilityUtils.kt b/compiler/frontend.java/src/org/jetbrains/kotlin/load/kotlin/moduleVisibilityUtils.kt
index fde0786082d..1d953dd44ed 100644
--- a/compiler/frontend.java/src/org/jetbrains/kotlin/load/kotlin/moduleVisibilityUtils.kt
+++ b/compiler/frontend.java/src/org/jetbrains/kotlin/load/kotlin/moduleVisibilityUtils.kt
@@ -27,6 +27,7 @@ import org.jetbrains.kotlin.resolve.DescriptorUtils
 import org.jetbrains.kotlin.serialization.deserialization.descriptors.DeserializedMemberDescriptor
 import org.jetbrains.kotlin.serialization.deserialization.descriptors.DeserializedTypeAliasDescriptor
 import java.io.File
+import java.nio.file.Paths
 
 interface ModuleVisibilityManager {
     val chunk: Collection<Module>
@@ -66,10 +67,12 @@ fun isContainedByCompiledPartOfOurModule(descriptor: DeclarationDescriptor, outD
 
     if (binaryClass is VirtualFileKotlinClass) {
         val file = binaryClass.file
-        if (file.fileSystem.protocol == StandardFileSystems.FILE_PROTOCOL) {
-            val ioFile = VfsUtilCore.virtualToIoFile(file)
-            return ioFile.absolutePath.startsWith(outDirectory.absolutePath + File.separator)
+        val ioFile = when (file.fileSystem.protocol) {
+            StandardFileSystems.FILE_PROTOCOL -> VfsUtilCore.virtualToIoFile(file)
+            StandardFileSystems.JAR_PROTOCOL -> VfsUtilCore.getVirtualFileForJar(file)?.let(VfsUtilCore::virtualToIoFile)
+            else -> null
         }
+        return ioFile != null && Paths.get(ioFile.toURI()).startsWith(Paths.get(outDirectory.toURI()))
     }
 
     return false
diff --git a/compiler/testData/friendPaths/lib.kt b/compiler/testData/friendPaths/lib.kt
new file mode 100644
index 00000000000..6ea78c185ff
--- /dev/null
+++ b/compiler/testData/friendPaths/lib.kt
@@ -0,0 +1,10 @@
+package lib
+
+fun publicFun() {}
+internal fun internalFun() {}
+
+val publicVal = ""
+internal val internalVal = ""
+
+class PublicClass
+internal class InternalClass
diff --git a/compiler/testData/friendPaths/usage.kt b/compiler/testData/friendPaths/usage.kt
new file mode 100644
index 00000000000..d6775cef658
--- /dev/null
+++ b/compiler/testData/friendPaths/usage.kt
@@ -0,0 +1,10 @@
+import lib.*
+
+fun usage() {
+    publicFun()
+    internalFun()
+    publicVal
+    internalVal
+    PublicClass()
+    InternalClass()
+}
diff --git a/compiler/tests/org/jetbrains/kotlin/cli/FriendPathsTest.kt b/compiler/tests/org/jetbrains/kotlin/cli/FriendPathsTest.kt
new file mode 100644
index 00000000000..4f501b55bd4
--- /dev/null
+++ b/compiler/tests/org/jetbrains/kotlin/cli/FriendPathsTest.kt
@@ -0,0 +1,76 @@
+/*
+ * Copyright 2010-2017 JetBrains s.r.o.
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ * http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+package org.jetbrains.kotlin.cli
+
+import org.jetbrains.kotlin.cli.common.ExitCode
+import org.jetbrains.kotlin.cli.common.arguments.K2JVMCompilerArguments
+import org.jetbrains.kotlin.cli.common.messages.CompilerMessageLocation
+import org.jetbrains.kotlin.cli.common.messages.CompilerMessageSeverity
+import org.jetbrains.kotlin.cli.common.messages.MessageCollector
+import org.jetbrains.kotlin.cli.jvm.K2JVMCompiler
+import org.jetbrains.kotlin.config.Services
+import org.jetbrains.kotlin.test.TestCaseWithTmpdir
+import org.junit.Assert
+import java.io.File
+
+/**
+ * This test checks that [org.jetbrains.kotlin.cli.common.arguments.K2JVMCompilerArguments.friendPaths] works by invoking the compiler's
+ * "exec" method directly. Once there's a CLI argument for friend paths, it can be simplified to use that CLI argument instead.
+ */
+class FriendPathsTest : TestCaseWithTmpdir() {
+    private fun getTestDataDirectory(): File = File("compiler/testData/friendPaths/")
+
+    fun testArchive() {
+        val libSrc = File(getTestDataDirectory(), "lib.kt")
+        val libDest = File(tmpdir, "lib.jar")
+        val (output, libExitCode) = AbstractCliTest.executeCompilerGrabOutput(K2JVMCompiler(), listOf("-d", libDest.path, libSrc.path))
+        Assert.assertEquals(output, ExitCode.OK, libExitCode)
+
+        Assert.assertEquals(ExitCode.OK, invokeCompiler(libDest.path))
+    }
+
+    fun testDirectory() {
+        val libSrc = File(getTestDataDirectory(), "lib.kt")
+        val libDest = File(tmpdir, "lib")
+        val (output, libExitCode) = AbstractCliTest.executeCompilerGrabOutput(K2JVMCompiler(), listOf("-d", libDest.path, libSrc.path))
+        Assert.assertEquals(output, ExitCode.OK, libExitCode)
+
+        Assert.assertEquals(ExitCode.OK, invokeCompiler(libDest.path))
+    }
+
+    private fun invokeCompiler(libraryPath: String): ExitCode {
+        return K2JVMCompiler().exec(ThrowingMessageCollector(), Services.EMPTY, K2JVMCompilerArguments().apply {
+            destination = tmpdir.path
+            classpath = libraryPath
+            freeArgs = listOf(File(getTestDataDirectory(), "usage.kt").path)
+
+            friendPaths = arrayOf(libraryPath)
+        })
+    }
+
+    private class ThrowingMessageCollector : MessageCollector {
+        override fun clear() {}
+
+        override fun report(severity: CompilerMessageSeverity, message: String, location: CompilerMessageLocation?) {
+            if (severity.isError) {
+                Assert.fail("${severity.presentableName}: $message at $location")
+            }
+        }
+
+        override fun hasErrors(): Boolean = false
+    }
+}