diff --git a/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosticCompilerTestFE10TestdataTestGenerated.java b/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosticCompilerTestFE10TestdataTestGenerated.java
index 415240ec363..c32de2f7ddf 100644
--- a/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosticCompilerTestFE10TestdataTestGenerated.java
+++ b/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosticCompilerTestFE10TestdataTestGenerated.java
@@ -12518,6 +12518,12 @@ public class DiagnosticCompilerTestFE10TestdataTestGenerated extends AbstractDia
                 KtTestUtil.assertAllTestsPresentByMetadataWithExcluded(this.getClass(), new File("compiler/testData/diagnostics/tests/exceptions"), Pattern.compile("^(.+)\\.(kt|kts)$"), Pattern.compile("^(.+)\\.(reversed|fir|ll)\\.kts?$"), true);
             }
 
+            @Test
+            @TestMetadata("annotationWithWrongArgInDanglingModifierList.kt")
+            public void testAnnotationWithWrongArgInDanglingModifierList() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.kt");
+            }
+
             @Test
             @TestMetadata("expectedSomeTypesOnBranchForWhenExpressionOfErroneousType.kt")
             public void testExpectedSomeTypesOnBranchForWhenExpressionOfErroneousType() throws Exception {
diff --git a/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/LLFirPreresolvedReversedDiagnosticCompilerFE10TestDataTestGenerated.java b/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/LLFirPreresolvedReversedDiagnosticCompilerFE10TestDataTestGenerated.java
index 9df531b9f0e..acfc5efe2a6 100644
--- a/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/LLFirPreresolvedReversedDiagnosticCompilerFE10TestDataTestGenerated.java
+++ b/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/LLFirPreresolvedReversedDiagnosticCompilerFE10TestDataTestGenerated.java
@@ -12518,6 +12518,12 @@ public class LLFirPreresolvedReversedDiagnosticCompilerFE10TestDataTestGenerated
                 KtTestUtil.assertAllTestsPresentByMetadataWithExcluded(this.getClass(), new File("compiler/testData/diagnostics/tests/exceptions"), Pattern.compile("^(.+)\\.(kt|kts)$"), Pattern.compile("^(.+)\\.(reversed|fir|ll)\\.kts?$"), true);
             }
 
+            @Test
+            @TestMetadata("annotationWithWrongArgInDanglingModifierList.kt")
+            public void testAnnotationWithWrongArgInDanglingModifierList() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.kt");
+            }
+
             @Test
             @TestMetadata("expectedSomeTypesOnBranchForWhenExpressionOfErroneousType.kt")
             public void testExpectedSomeTypesOnBranchForWhenExpressionOfErroneousType() throws Exception {
diff --git a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirLightTreeOldFrontendDiagnosticsTestGenerated.java b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirLightTreeOldFrontendDiagnosticsTestGenerated.java
index 1940ec1cb2f..c6841b7bcd8 100644
--- a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirLightTreeOldFrontendDiagnosticsTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirLightTreeOldFrontendDiagnosticsTestGenerated.java
@@ -12512,6 +12512,12 @@ public class FirLightTreeOldFrontendDiagnosticsTestGenerated extends AbstractFir
                 KtTestUtil.assertAllTestsPresentByMetadataWithExcluded(this.getClass(), new File("compiler/testData/diagnostics/tests/exceptions"), Pattern.compile("^(.+)\\.kt$"), Pattern.compile("^(.+)\\.(reversed|fir|ll)\\.kts?$"), true, "multiplatform");
             }
 
+            @Test
+            @TestMetadata("annotationWithWrongArgInDanglingModifierList.kt")
+            public void testAnnotationWithWrongArgInDanglingModifierList() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.kt");
+            }
+
             @Test
             @TestMetadata("expectedSomeTypesOnBranchForWhenExpressionOfErroneousType.kt")
             public void testExpectedSomeTypesOnBranchForWhenExpressionOfErroneousType() throws Exception {
diff --git a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirPsiOldFrontendDiagnosticsTestGenerated.java b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirPsiOldFrontendDiagnosticsTestGenerated.java
index 66c594f8993..ce549907dfc 100644
--- a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirPsiOldFrontendDiagnosticsTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirPsiOldFrontendDiagnosticsTestGenerated.java
@@ -12518,6 +12518,12 @@ public class FirPsiOldFrontendDiagnosticsTestGenerated extends AbstractFirPsiDia
                 KtTestUtil.assertAllTestsPresentByMetadataWithExcluded(this.getClass(), new File("compiler/testData/diagnostics/tests/exceptions"), Pattern.compile("^(.*)\\.kts?$"), Pattern.compile("^(.+)\\.(reversed|fir|ll)\\.kts?$"), true, "multiplatform");
             }
 
+            @Test
+            @TestMetadata("annotationWithWrongArgInDanglingModifierList.kt")
+            public void testAnnotationWithWrongArgInDanglingModifierList() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.kt");
+            }
+
             @Test
             @TestMetadata("expectedSomeTypesOnBranchForWhenExpressionOfErroneousType.kt")
             public void testExpectedSomeTypesOnBranchForWhenExpressionOfErroneousType() throws Exception {
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirImplicitBodyResolve.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirImplicitBodyResolve.kt
index 34bdac92691..2cfdc9c16c2 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirImplicitBodyResolve.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirImplicitBodyResolve.kt
@@ -138,6 +138,17 @@ open class FirImplicitAwareBodyResolveTransformer(
         super.transformDeclarationContent(declaration, data)
     }
 
+    override fun transformDanglingModifierList(
+        danglingModifierList: FirDanglingModifierList,
+        data: ResolutionMode
+    ): FirDanglingModifierList {
+        return if (implicitTypeOnly) {
+            danglingModifierList
+        } else {
+            transformElement(danglingModifierList, data)
+        }
+    }
+
     override fun transformSimpleFunction(
         simpleFunction: FirSimpleFunction,
         data: ResolutionMode
diff --git a/compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.fir.kt b/compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.fir.kt
new file mode 100644
index 00000000000..c6cbcb764a7
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.fir.kt
@@ -0,0 +1,11 @@
+// ISSUE: KT-63508
+
+annotation class Ann(val x: String)
+
+fun foo() {
+    class Local {
+        @Ann(<!ANONYMOUS_FUNCTION_WITH_NAME!>fun f(): String { return <!RETURN_TYPE_MISMATCH!>42<!> }<!>)<!SYNTAX!><!>
+    }
+}
+
+@Ann(<!ANONYMOUS_FUNCTION_WITH_NAME!>fun g(): String { return <!RETURN_TYPE_MISMATCH!>42<!> }<!>)<!SYNTAX!><!>
diff --git a/compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.kt b/compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.kt
new file mode 100644
index 00000000000..a64b696d7b3
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.kt
@@ -0,0 +1,11 @@
+// ISSUE: KT-63508
+
+annotation class Ann(val x: String)
+
+fun foo() {
+    class Local {
+        @Ann(<!ANNOTATION_ARGUMENT_MUST_BE_CONST, TYPE_MISMATCH!>fun <!ANONYMOUS_FUNCTION_WITH_NAME!>f<!>(): String { return <!CONSTANT_EXPECTED_TYPE_MISMATCH!>42<!> }<!>)<!SYNTAX!><!>
+    }
+}
+
+@Ann(<!ANNOTATION_ARGUMENT_MUST_BE_CONST, TYPE_MISMATCH!>fun <!ANONYMOUS_FUNCTION_WITH_NAME!>g<!>(): String { return <!CONSTANT_EXPECTED_TYPE_MISMATCH!>42<!> }<!>)<!SYNTAX!><!>
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 0cbd3ba5891..74754150b88 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
@@ -12518,6 +12518,12 @@ public class DiagnosticTestGenerated extends AbstractDiagnosticTest {
                 KtTestUtil.assertAllTestsPresentByMetadataWithExcluded(this.getClass(), new File("compiler/testData/diagnostics/tests/exceptions"), Pattern.compile("^(.*)\\.kts?$"), Pattern.compile("^(.+)\\.(reversed|fir|ll)\\.kts?$"), true);
             }
 
+            @Test
+            @TestMetadata("annotationWithWrongArgInDanglingModifierList.kt")
+            public void testAnnotationWithWrongArgInDanglingModifierList() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/exceptions/annotationWithWrongArgInDanglingModifierList.kt");
+            }
+
             @Test
             @TestMetadata("expectedSomeTypesOnBranchForWhenExpressionOfErroneousType.kt")
             public void testExpectedSomeTypesOnBranchForWhenExpressionOfErroneousType() throws Exception {