diff --git a/compiler/frontend/src/org/jetbrains/kotlin/parsing/JetParsing.java b/compiler/frontend/src/org/jetbrains/kotlin/parsing/JetParsing.java
index 1303636dc02..df29767ccd2 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/parsing/JetParsing.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/parsing/JetParsing.java
@@ -455,7 +455,7 @@ public class JetParsing extends AbstractJetParsing {
             if ((annotationParsingMode == PRIMARY_CONSTRUCTOR_MODIFIER_LIST || annotationParsingMode == PRIMARY_CONSTRUCTOR_MODIFIER_LIST_LOCAL) &&
                 atSet(CONSTRUCTOR_KEYWORD, WHERE_KEYWORD)) break;
 
-            if (at(AT)) {
+            if (at(AT) && annotationParsingMode.allowAnnotations) {
                 parseAnnotationOrList(annotationParsingMode);
             }
             else if (tryParseModifier(tokenConsumer)) {
@@ -2082,7 +2082,7 @@ public class JetParsing extends AbstractJetParsing {
 //            TokenSet stopAt = TokenSet.create(COMMA, COLON, GT);
 //            parseModifierListWithUnescapedAnnotations(MODIFIER_LIST, lookFor, stopAt);
             // Currently we do not allow annotations
-            parseModifierList(ONLY_ESCAPED_REGULAR_ANNOTATIONS);
+            parseModifierList(NO_ANNOTATIONS);
 
             if (at(MUL)) {
                 advance(); // MUL
@@ -2331,26 +2331,31 @@ public class JetParsing extends AbstractJetParsing {
     }
 
     enum AnnotationParsingMode {
-        FILE_ANNOTATIONS_BEFORE_PACKAGE(false, true, false),
-        FILE_ANNOTATIONS_WHEN_PACKAGE_OMITTED(false, true, false),
-        ONLY_ESCAPED_REGULAR_ANNOTATIONS(false, false, false),
-        ALLOW_UNESCAPED_REGULAR_ANNOTATIONS(true, false, false),
-        ALLOW_UNESCAPED_REGULAR_ANNOTATIONS_AT_MEMBER_MODIFIER_LIST(true, false, true),
-        PRIMARY_CONSTRUCTOR_MODIFIER_LIST(true, false, false),
-        PRIMARY_CONSTRUCTOR_MODIFIER_LIST_LOCAL(false, false, false);
+        FILE_ANNOTATIONS_BEFORE_PACKAGE(false, true, false, true),
+        FILE_ANNOTATIONS_WHEN_PACKAGE_OMITTED(false, true, false, true),
+        ONLY_ESCAPED_REGULAR_ANNOTATIONS(false, false, false, true),
+        ALLOW_UNESCAPED_REGULAR_ANNOTATIONS(true, false, false, true),
+        ALLOW_UNESCAPED_REGULAR_ANNOTATIONS_AT_MEMBER_MODIFIER_LIST(true, false, true, true),
+        PRIMARY_CONSTRUCTOR_MODIFIER_LIST(true, false, false, true),
+        PRIMARY_CONSTRUCTOR_MODIFIER_LIST_LOCAL(false, false, false, true),
+        NO_ANNOTATIONS(false, false, false, false);
+
 
         boolean allowShortAnnotations;
         boolean isFileAnnotationParsingMode;
         boolean atMemberStart;
+        boolean allowAnnotations;
 
         AnnotationParsingMode(
                 boolean allowShortAnnotations,
                 boolean isFileAnnotationParsingMode,
-                boolean atMemberStart
+                boolean atMemberStart,
+                boolean allowAnnotations
         ) {
             this.allowShortAnnotations = allowShortAnnotations;
             this.isFileAnnotationParsingMode = isFileAnnotationParsingMode;
             this.atMemberStart = atMemberStart;
+            this.allowAnnotations = allowAnnotations;
         }
     }
 }
diff --git a/compiler/testData/diagnostics/tests/annotations/options/targets/typeargs.kt b/compiler/testData/diagnostics/tests/annotations/options/targets/typeargs.kt
index 88b3aee5f26..ba58167ad7c 100644
--- a/compiler/testData/diagnostics/tests/annotations/options/targets/typeargs.kt
+++ b/compiler/testData/diagnostics/tests/annotations/options/targets/typeargs.kt
@@ -1,3 +1,5 @@
 annotation class base
 
-val x: List<@<!DEBUG_INFO_MISSING_UNRESOLVED!>base<!> String>? = null
+val x: List<@base String>? = null
+
+val y: List<@[base] String>? = null
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/annotations/options/targets/typeargs.txt b/compiler/testData/diagnostics/tests/annotations/options/targets/typeargs.txt
index 9b5caee7925..6b709622e96 100644
--- a/compiler/testData/diagnostics/tests/annotations/options/targets/typeargs.txt
+++ b/compiler/testData/diagnostics/tests/annotations/options/targets/typeargs.txt
@@ -1,6 +1,7 @@
 package
 
-public val x: kotlin.List<kotlin.String>? = null
+public val x: kotlin.List<@base() kotlin.String>? = null
+public val y: kotlin.List<@base() kotlin.String>? = null
 
 @kotlin.annotation.annotation() public final class base : kotlin.Annotation {
     public constructor base()
diff --git a/compiler/testData/psi/annotation/TypeAnnotations.txt b/compiler/testData/psi/annotation/TypeAnnotations.txt
index 538d5ddfe9a..61bdb4e78c7 100644
--- a/compiler/testData/psi/annotation/TypeAnnotations.txt
+++ b/compiler/testData/psi/annotation/TypeAnnotations.txt
@@ -79,7 +79,7 @@ JetFile: TypeAnnotations.kt
         TYPE_ARGUMENT_LIST
           PsiElement(LT)('<')
           TYPE_PROJECTION
-            MODIFIER_LIST
+            TYPE_REFERENCE
               ANNOTATION
                 PsiElement(AT)('@')
                 PsiElement(LBRACKET)('[')
@@ -90,8 +90,7 @@ JetFile: TypeAnnotations.kt
                         REFERENCE_EXPRESSION
                           PsiElement(IDENTIFIER)('x')
                 PsiElement(RBRACKET)(']')
-            PsiWhiteSpace(' ')
-            TYPE_REFERENCE
+              PsiWhiteSpace(' ')
               USER_TYPE
                 REFERENCE_EXPRESSION
                   PsiElement(IDENTIFIER)('A')
diff --git a/idea/testData/decompiler/decompiledText/FunctionTypes.expected.kt b/idea/testData/decompiler/decompiledText/FunctionTypes.expected.kt
index 921bef98414..c4a07d88f6a 100644
--- a/idea/testData/decompiler/decompiledText/FunctionTypes.expected.kt
+++ b/idea/testData/decompiler/decompiledText/FunctionTypes.expected.kt
@@ -10,7 +10,7 @@ public final class FunctionTypes public constructor() {
 
     public final fun f3(f: kotlin.Int.(kotlin.Int) -> kotlin.Unit): kotlin.Unit { /* compiled code */ }
 
-    public final fun f4(f: kotlin.List<kotlin.Function1<*, *>>): kotlin.Unit { /* compiled code */ }
+    public final fun f4(f: kotlin.List<@kotlin.Extension kotlin.Function1<*, *>>): kotlin.Unit { /* compiled code */ }
 
     public final fun <A> (A.(A) -> A)?.bar(): kotlin.Unit { /* compiled code */ }
 
diff --git a/idea/testData/decompiler/stubBuilder/Types/Types.txt b/idea/testData/decompiler/stubBuilder/Types/Types.txt
index 2fddc99b0cf..b3b7f3fac0f 100644
--- a/idea/testData/decompiler/stubBuilder/Types/Types.txt
+++ b/idea/testData/decompiler/stubBuilder/Types/Types.txt
@@ -252,6 +252,13 @@ PsiJetFileStubImpl[package=test]
             TYPE_ARGUMENT_LIST:
               TYPE_PROJECTION:[projectionKind=NONE]
                 TYPE_REFERENCE:
+                  ANNOTATION_ENTRY:[hasValueArguments=false, shortName=Extension]
+                    CONSTRUCTOR_CALLEE:
+                      TYPE_REFERENCE:
+                        USER_TYPE:[isAbsoluteInRootPackage=false]
+                          USER_TYPE:[isAbsoluteInRootPackage=false]
+                            REFERENCE_EXPRESSION:[referencedName=kotlin]
+                          REFERENCE_EXPRESSION:[referencedName=Extension]
                   USER_TYPE:[isAbsoluteInRootPackage=false]
                     USER_TYPE:[isAbsoluteInRootPackage=false]
                       REFERENCE_EXPRESSION:[referencedName=kotlin]