diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/DescriptorUtils.java b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/DescriptorUtils.java
index 730f493690b..f7320f3c81a 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/DescriptorUtils.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/DescriptorUtils.java
@@ -23,6 +23,7 @@ import org.jetbrains.jet.lang.descriptors.*;
 import org.jetbrains.jet.lang.descriptors.annotations.AnnotationDescriptor;
 import org.jetbrains.jet.lang.psi.JetElement;
 import org.jetbrains.jet.lang.psi.JetFunction;
+import org.jetbrains.jet.lang.psi.JetPsiUtil;
 import org.jetbrains.jet.lang.resolve.constants.CompileTimeConstant;
 import org.jetbrains.jet.lang.resolve.name.FqName;
 import org.jetbrains.jet.lang.resolve.name.FqNameUnsafe;
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/ModifiersChecker.java b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/ModifiersChecker.java
index 9cabb0973e3..ce15a1bb20d 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/ModifiersChecker.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/ModifiersChecker.java
@@ -31,6 +31,7 @@ import org.jetbrains.jet.lexer.JetKeywordToken;
 import org.jetbrains.jet.lexer.JetToken;
 
 import java.util.Collection;
+import java.util.Collections;
 import java.util.Map;
 
 import static org.jetbrains.jet.lexer.JetTokens.*;
@@ -57,6 +58,7 @@ public class ModifiersChecker {
         JetModifierList modifierList = modifierListOwner.getModifierList();
         checkModalityModifiers(modifierList);
         checkVisibilityModifiers(modifierList, descriptor);
+        checkInnerModifier(modifierListOwner, descriptor);
     }
 
     public void checkModifiersForLocalDeclaration(@NotNull JetModifierListOwner modifierListOwner) {
@@ -93,6 +95,25 @@ public class ModifiersChecker {
         checkCompatibility(modifierList, VISIBILITY_MODIFIERS);
     }
 
+    private void checkInnerModifier(@NotNull JetModifierListOwner modifierListOwner, @NotNull DeclarationDescriptor descriptor) {
+        JetModifierList modifierList = modifierListOwner.getModifierList();
+
+        if (modifierList != null && modifierList.hasModifier(INNER_KEYWORD)) {
+            if (isIllegalInner(descriptor)) {
+                checkIllegalInThisContextModifiers(modifierList, Collections.singletonList(INNER_KEYWORD));
+            }
+        }
+    }
+
+    private static boolean isIllegalInner(@NotNull DeclarationDescriptor descriptor) {
+        if (!(descriptor instanceof ClassDescriptor)) return true;
+        ClassDescriptor classDescriptor = (ClassDescriptor) descriptor;
+        if (classDescriptor.getKind() != ClassKind.CLASS) return true;
+        DeclarationDescriptor containingDeclaration = classDescriptor.getContainingDeclaration();
+        if (!(containingDeclaration instanceof ClassDescriptor)) return true;
+        return ((ClassDescriptor) containingDeclaration).getKind() == ClassKind.TRAIT;
+    }
+
     private void checkCompatibility(@Nullable JetModifierList modifierList, Collection<JetKeywordToken> availableModifiers, Collection<JetToken>... availableCombinations) {
         if (modifierList == null) return;
         Collection<JetKeywordToken> presentModifiers = Sets.newLinkedHashSet();
diff --git a/compiler/testData/diagnostics/tests/inner/illegalModifier.kt b/compiler/testData/diagnostics/tests/inner/illegalModifier.kt
new file mode 100644
index 00000000000..2c98ac6fead
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inner/illegalModifier.kt
@@ -0,0 +1,41 @@
+<!ILLEGAL_MODIFIER!>inner<!> fun foo() {}
+<!ILLEGAL_MODIFIER!>inner<!> val prop = 42
+
+<!ILLEGAL_MODIFIER!>inner<!> class A
+<!ILLEGAL_MODIFIER!>inner<!> trait B
+<!ILLEGAL_MODIFIER!>inner<!> object C
+
+class D {
+    inner class E
+    <!ILLEGAL_MODIFIER!>inner<!> trait F
+    <!ILLEGAL_MODIFIER!>inner<!> object G
+    <!ILLEGAL_MODIFIER!>inner<!> enum class R
+    <!ILLEGAL_MODIFIER!>inner<!> annotation class S
+    <!ILLEGAL_MODIFIER!>inner<!> class object
+}
+
+enum class H {
+    <!ILLEGAL_MODIFIER!>inner<!> I {
+        inner class II
+    }
+    
+    inner class J
+}
+
+trait K {
+    <!ILLEGAL_MODIFIER!>inner<!> class L
+}
+
+object N {
+    inner class O
+}
+
+class P {
+    class object {
+        inner class Q
+    }
+}
+
+val R = object {
+    inner class S
+}
diff --git a/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
index 17a11037c32..c2f4951dcee 100644
--- a/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/jet/checkers/JetDiagnosticsTestGenerated.java
@@ -2419,6 +2419,11 @@ public class JetDiagnosticsTestGenerated extends AbstractDiagnosticsTestWithEage
                 doTest("compiler/testData/diagnostics/tests/inner/extensionFun.kt");
             }
             
+            @TestMetadata("illegalModifier.kt")
+            public void testIllegalModifier() throws Exception {
+                doTest("compiler/testData/diagnostics/tests/inner/illegalModifier.kt");
+            }
+            
             @TestMetadata("innerThisSuper.kt")
             public void testInnerThisSuper() throws Exception {
                 doTest("compiler/testData/diagnostics/tests/inner/innerThisSuper.kt");