diff --git a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsTestGenerated.java b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsTestGenerated.java
index 4eb27cecbe9..9e8464c2b11 100644
--- a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirOldFrontendDiagnosticsTestGenerated.java
@@ -12558,6 +12558,12 @@ public class FirOldFrontendDiagnosticsTestGenerated extends AbstractFirDiagnosti
                     runTest("compiler/testData/diagnostics/tests/inference/capturedTypes/starProjectionRegression.kt");
                 }
 
+                @Test
+                @TestMetadata("substituteCapturedTypesWithTypeVariables.kt")
+                public void testSubstituteCapturedTypesWithTypeVariables() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.kt");
+                }
+
                 @Test
                 @TestMetadata("topLevelCapturingInsideReturnType.kt")
                 public void testTopLevelCapturingInsideReturnType() throws Exception {
diff --git a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
index 8a795862d30..7a94cc38321 100644
--- a/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
+++ b/compiler/resolution/src/org/jetbrains/kotlin/resolve/calls/inference/components/NewTypeSubstitutor.kt
@@ -7,6 +7,7 @@ package org.jetbrains.kotlin.resolve.calls.inference.components
 
 import org.jetbrains.kotlin.descriptors.TypeParameterDescriptor
 import org.jetbrains.kotlin.descriptors.annotations.CompositeAnnotations
+import org.jetbrains.kotlin.resolve.calls.inference.isCaptured
 import org.jetbrains.kotlin.resolve.calls.inference.model.TypeVariableFromCallableDescriptor
 import org.jetbrains.kotlin.resolve.calls.inference.substitute
 import org.jetbrains.kotlin.types.*
@@ -105,8 +106,8 @@ interface NewTypeSubstitutor : TypeSubstitutorMarker {
             val substitutedInnerType = substitute(innerType, keepAnnotation, runCapturedChecks = false)
 
             if (substitutedInnerType != null) {
-                if (innerType is StubType || substitutedInnerType is StubType || innerType.constructor is IntersectionTypeConstructor) {
-                    return NewCapturedType(
+                return if (substitutedInnerType.isCaptured()) substitutedInnerType else {
+                    NewCapturedType(
                         capturedType.captureStatus,
                         NewCapturedTypeConstructor(
                             TypeProjectionImpl(typeConstructor.projection.projectionKind, substitutedInnerType),
@@ -114,8 +115,6 @@ interface NewTypeSubstitutor : TypeSubstitutorMarker {
                         ),
                         lowerType = if (capturedType.lowerType != null) substitutedInnerType else null
                     )
-                } else {
-                    throwExceptionAboutInvalidCapturedSubstitution(capturedType, innerType, substitutedInnerType)
                 }
             }
 
diff --git a/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.fir.kt b/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.fir.kt
new file mode 100644
index 00000000000..fe6db488f48
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.fir.kt
@@ -0,0 +1,12 @@
+// !DIAGNOSTICS: -CAST_NEVER_SUCCEEDS -UNUSED_PARAMETER
+
+class Foo<K>
+
+fun <T> getFoo(value: T) = null as Foo<out Foo<T>>
+fun <R> takeLambda(block: () -> R) {}
+
+fun main(x: Int) {
+    takeLambda {
+        getFoo(x)
+    }
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.kt b/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.kt
new file mode 100644
index 00000000000..fe6db488f48
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.kt
@@ -0,0 +1,12 @@
+// !DIAGNOSTICS: -CAST_NEVER_SUCCEEDS -UNUSED_PARAMETER
+
+class Foo<K>
+
+fun <T> getFoo(value: T) = null as Foo<out Foo<T>>
+fun <R> takeLambda(block: () -> R) {}
+
+fun main(x: Int) {
+    takeLambda {
+        getFoo(x)
+    }
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.txt b/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.txt
new file mode 100644
index 00000000000..51fc17480a5
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.txt
@@ -0,0 +1,12 @@
+package
+
+public fun </*0*/ T> getFoo(/*0*/ value: T): Foo<out Foo<T>>
+public fun main(/*0*/ x: kotlin.Int): kotlin.Unit
+public fun </*0*/ R> takeLambda(/*0*/ block: () -> R): kotlin.Unit
+
+public final class Foo</*0*/ K> {
+    public constructor Foo</*0*/ K>()
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
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 98674b54f49..dec8e6abe90 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
@@ -12564,6 +12564,12 @@ public class DiagnosticTestGenerated extends AbstractDiagnosticTest {
                     runTest("compiler/testData/diagnostics/tests/inference/capturedTypes/starProjectionRegression.kt");
                 }
 
+                @Test
+                @TestMetadata("substituteCapturedTypesWithTypeVariables.kt")
+                public void testSubstituteCapturedTypesWithTypeVariables() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/inference/capturedTypes/substituteCapturedTypesWithTypeVariables.kt");
+                }
+
                 @Test
                 @TestMetadata("topLevelCapturingInsideReturnType.kt")
                 public void testTopLevelCapturingInsideReturnType() throws Exception {