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 f7182ba2dc5..0e5e03da741 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
@@ -13743,6 +13743,12 @@ public class DiagnosticCompilerTestFE10TestdataTestGenerated extends AbstractDia
                     runTest("compiler/testData/diagnostics/tests/generics/innerClasses/importedInner.kt");
                 }
 
+                @Test
+                @TestMetadata("innerClassGenericBounds.kt")
+                public void testInnerClassGenericBounds() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.kt");
+                }
+
                 @Test
                 @TestMetadata("innerSuperCall.kt")
                 public void testInnerSuperCall() 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 57a179f9395..26d3a86e8fd 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
@@ -13743,6 +13743,12 @@ public class LLFirPreresolvedReversedDiagnosticCompilerFE10TestDataTestGenerated
                     runTest("compiler/testData/diagnostics/tests/generics/innerClasses/importedInner.kt");
                 }
 
+                @Test
+                @TestMetadata("innerClassGenericBounds.kt")
+                public void testInnerClassGenericBounds() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.kt");
+                }
+
                 @Test
                 @TestMetadata("innerSuperCall.kt")
                 public void testInnerSuperCall() 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 e01bd7797d8..ff2231c2252 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
@@ -13743,6 +13743,12 @@ public class FirLightTreeOldFrontendDiagnosticsTestGenerated extends AbstractFir
                     runTest("compiler/testData/diagnostics/tests/generics/innerClasses/importedInner.kt");
                 }
 
+                @Test
+                @TestMetadata("innerClassGenericBounds.kt")
+                public void testInnerClassGenericBounds() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.kt");
+                }
+
                 @Test
                 @TestMetadata("innerSuperCall.kt")
                 public void testInnerSuperCall() 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 19b0af95571..04e535cc37a 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
@@ -13749,6 +13749,12 @@ public class FirPsiOldFrontendDiagnosticsTestGenerated extends AbstractFirPsiDia
                     runTest("compiler/testData/diagnostics/tests/generics/innerClasses/importedInner.kt");
                 }
 
+                @Test
+                @TestMetadata("innerClassGenericBounds.kt")
+                public void testInnerClassGenericBounds() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.kt");
+                }
+
                 @Test
                 @TestMetadata("innerSuperCall.kt")
                 public void testInnerSuperCall() throws Exception {
diff --git a/compiler/fir/checkers/src/org/jetbrains/kotlin/fir/analysis/checkers/FirUpperBoundViolatedHelpers.kt b/compiler/fir/checkers/src/org/jetbrains/kotlin/fir/analysis/checkers/FirUpperBoundViolatedHelpers.kt
index d948363714d..5362767bbbb 100644
--- a/compiler/fir/checkers/src/org/jetbrains/kotlin/fir/analysis/checkers/FirUpperBoundViolatedHelpers.kt
+++ b/compiler/fir/checkers/src/org/jetbrains/kotlin/fir/analysis/checkers/FirUpperBoundViolatedHelpers.kt
@@ -219,13 +219,15 @@ fun ConeClassLikeType.fullyExpandedTypeWithSource(
     useSiteSession: FirSession,
 ): ConeClassLikeType? {
     val typeRefAndSourcesForArguments = extractArgumentsTypeRefAndSource(typeRef) ?: return null
-    // Avoid issues with nested type aliases and context receivers on function types as source information isn't returned.
-    if (typeRefAndSourcesForArguments.size != typeArguments.size) return null
 
     // Add source information to arguments of non-expanded type, which is preserved during expansion.
-    val typeArguments =
-        typeArguments.zip(typeRefAndSourcesForArguments) { projection, source -> projection.withSource(source) }
-            .toTypedArray()
+    val typeArguments = typeArguments.mapIndexed { i, projection ->
+        // typeRefAndSourcesForArguments can have fewer elements than there are type arguments
+        // because in FIR, inner types of generic outer types have the generic arguments of the outer type added to the end of their list
+        // of type arguments but there is no source for them.
+        val source = typeRefAndSourcesForArguments.elementAtOrNull(i) ?: return@mapIndexed projection
+        projection.withSource(source)
+    }.toTypedArray()
 
     return withArguments(typeArguments).fullyExpandedType(useSiteSession)
 }
diff --git a/compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.fir.kt b/compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.fir.kt
new file mode 100644
index 00000000000..81e712de4e5
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.fir.kt
@@ -0,0 +1,41 @@
+// ISSUE: KT-61068, KT-35566
+// FILE: generic.kt
+package generic
+
+interface Foo
+
+open class SuperOuter<T> {
+    open inner class SuperInner<D : Foo>(database: D)
+}
+
+class SubOuter : SuperOuter<Unit>() {
+    inner class SubInner(database: Any?) : SuperInner<<!UPPER_BOUND_VIOLATED!>Any?<!>>(<!ARGUMENT_TYPE_MISMATCH!>database<!>)
+}
+
+// FILE: nongeneric.kt
+package nongeneric
+
+interface Foo
+
+open class SuperOuter {
+    open inner class SuperInner<D : Foo>(database: D)
+}
+
+class SubOuter : SuperOuter() {
+    inner class SubInner(database: Any?) : SuperInner<<!UPPER_BOUND_VIOLATED!>Any?<!>>(<!ARGUMENT_TYPE_MISMATCH!>database<!>)
+}
+
+// FILE: kt35566.kt
+package kt35566
+
+open class Case1<K : Number> {
+    open inner class Case1_1<L> : Case1<Int>() where L : CharSequence {
+        var x: L? = null
+
+        inner class Case1_2<M>(m: M) : Case1<K>.Case1_1<<!UPPER_BOUND_VIOLATED!>M<!>>() where M : Map<K, L> {
+            init {
+                x = m
+            }
+        }
+    }
+}
diff --git a/compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.kt b/compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.kt
new file mode 100644
index 00000000000..5771ee8cd02
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.kt
@@ -0,0 +1,41 @@
+// ISSUE: KT-61068, KT-35566
+// FILE: generic.kt
+package generic
+
+interface Foo
+
+open class SuperOuter<T> {
+    open inner class SuperInner<D : Foo>(database: D)
+}
+
+class SubOuter : SuperOuter<Unit>() {
+    inner class SubInner(database: Any?) : SuperInner<Any?>(database)
+}
+
+// FILE: nongeneric.kt
+package nongeneric
+
+interface Foo
+
+open class SuperOuter {
+    open inner class SuperInner<D : Foo>(database: D)
+}
+
+class SubOuter : SuperOuter() {
+    inner class SubInner(database: Any?) : SuperInner<<!UPPER_BOUND_VIOLATED!>Any?<!>>(database)
+}
+
+// FILE: kt35566.kt
+package kt35566
+
+open class Case1<K : Number> {
+    open inner class Case1_1<L> : Case1<Int>() where L : CharSequence {
+        var x: L? = null
+
+        inner class Case1_2<M>(m: M) : Case1<K>.Case1_1<M>() where M : Map<K, L> {
+            init {
+                x = m
+            }
+        }
+    }
+}
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 84ddf90097a..23056025a48 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
@@ -13749,6 +13749,12 @@ public class DiagnosticTestGenerated extends AbstractDiagnosticTest {
                     runTest("compiler/testData/diagnostics/tests/generics/innerClasses/importedInner.kt");
                 }
 
+                @Test
+                @TestMetadata("innerClassGenericBounds.kt")
+                public void testInnerClassGenericBounds() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/innerClasses/innerClassGenericBounds.kt");
+                }
+
                 @Test
                 @TestMetadata("innerSuperCall.kt")
                 public void testInnerSuperCall() throws Exception {