diff --git a/compiler/cli/src/org/jetbrains/kotlin/cli/jvm/compiler/KotlinCliJavaFileManagerImpl.kt b/compiler/cli/src/org/jetbrains/kotlin/cli/jvm/compiler/KotlinCliJavaFileManagerImpl.kt
index 007f591bb4b..b5f2ac06bb7 100644
--- a/compiler/cli/src/org/jetbrains/kotlin/cli/jvm/compiler/KotlinCliJavaFileManagerImpl.kt
+++ b/compiler/cli/src/org/jetbrains/kotlin/cli/jvm/compiler/KotlinCliJavaFileManagerImpl.kt
@@ -53,12 +53,31 @@ class KotlinCliJavaFileManagerImpl(private val myPsiManager: PsiManager) : CoreJ
         }
     }
 
+    // this method is called from IDEA to resolve dependencies in Java code
+    // which supposedly shouldn't have errors so the dependencies exist in general
     override fun findClass(qName: String, scope: GlobalSearchScope): PsiClass? {
-        // this method is called from IDEA to resolve dependencies in Java code
-        // which supposedly shouldn't have errors so the dependencies exist in general
-        // Most classes are top level classes so we will try to find them fast
-        // but we must sometimes fallback to support finding inner/nested classes
-        return qName.toSafeTopLevelClassId()?.let { classId -> findClass(classId, scope) } ?: super.findClass(qName, scope)
+        // String cannot be reliably converted to ClassId because we don't know where the package name ends and class names begin.
+        // For example, if qName is "a.b.c.d.e", we should either look for a top level class "e" in the package "a.b.c.d",
+        // or, for example, for a nested class with the relative qualified name "c.d.e" in the package "a.b".
+        // Below, we start by looking for the top level class "e" in the package "a.b.c.d" first, then for the class "d.e" in the package
+        // "a.b.c", and so on, until we find something. Most classes are top level, so most of the times the search ends quickly
+
+        var classId = qName.toSafeTopLevelClassId() ?: return super.findClass(qName, scope)
+
+        while (true) {
+            findClass(classId, scope)?.let { return it }
+
+            val packageFqName = classId.packageFqName
+            if (packageFqName.isRoot) break
+
+            classId = ClassId(
+                    packageFqName.parent(),
+                    FqName(packageFqName.shortName().asString() + "." + classId.relativeClassName.asString()),
+                    false
+            )
+        }
+
+        return super.findClass(qName, scope)
     }
 
     override fun findClasses(qName: String, scope: GlobalSearchScope): Array<PsiClass> {
diff --git a/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/library/test/Baz.java b/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/library/test/Baz.java
new file mode 100644
index 00000000000..24bdeb225d2
--- /dev/null
+++ b/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/library/test/Baz.java
@@ -0,0 +1,6 @@
+package test;
+
+public class Baz implements Foo.Bar {
+    @Override
+    public void bar() {}
+}
diff --git a/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/library/test/Foo.java b/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/library/test/Foo.java
index 93fc3998747..e67176fcedd 100644
--- a/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/library/test/Foo.java
+++ b/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/library/test/Foo.java
@@ -2,6 +2,6 @@ package test;
 
 public class Foo {
     public interface Bar {
-
+        void bar();
     }
 }
diff --git a/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/source.kt b/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/source.kt
index bc8bfdcee8d..70438e02bd3 100644
--- a/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/source.kt
+++ b/compiler/testData/compileKotlinAgainstCustomBinaries/innerClassPackageConflict/source.kt
@@ -1,3 +1,5 @@
 import test.Foo.Bar
+import test.Baz
 
 val f: Bar? = null
+val g: Baz? = Baz().apply { bar() }
diff --git a/jps-plugin/jps-tests/test/org/jetbrains/kotlin/jps/build/KotlinJpsBuildTest.kt b/jps-plugin/jps-tests/test/org/jetbrains/kotlin/jps/build/KotlinJpsBuildTest.kt
index 80df674ea75..6111345beaf 100644
--- a/jps-plugin/jps-tests/test/org/jetbrains/kotlin/jps/build/KotlinJpsBuildTest.kt
+++ b/jps-plugin/jps-tests/test/org/jetbrains/kotlin/jps/build/KotlinJpsBuildTest.kt
@@ -277,12 +277,9 @@ class KotlinJpsBuildTest : AbstractKotlinJpsBuildTestCase() {
         assertEquals("Invalid package prefix name is ignored: invalid-prefix.test", warnings.first().messageText)
     }
 
-    fun testSourcePackagePrefixKnownIssueWithInnerClasses() {
+    fun testSourcePackagePrefixWithInnerClasses() {
         initProject()
-        val buildResult = buildAllModules()
-        buildResult.assertFailed()
-        val errors = buildResult.getMessages(BuildMessage.Kind.ERROR).map { it.messageText }
-        assertTrue("Message wasn't found. $errors", errors.first().contains("class xxx.JavaWithInner.TextRenderer, unresolved supertypes: TableRow"))
+        buildAllModules().assertSuccessful()
     }
 
     fun testKotlinJavaScriptProject() {
diff --git a/jps-plugin/testData/general/SourcePackagePrefixKnownIssueWithInnerClasses/kotlinProject.iml b/jps-plugin/testData/general/SourcePackagePrefixWithInnerClasses/kotlinProject.iml
similarity index 100%
rename from jps-plugin/testData/general/SourcePackagePrefixKnownIssueWithInnerClasses/kotlinProject.iml
rename to jps-plugin/testData/general/SourcePackagePrefixWithInnerClasses/kotlinProject.iml
diff --git a/jps-plugin/testData/general/SourcePackagePrefixKnownIssueWithInnerClasses/kotlinProject.ipr b/jps-plugin/testData/general/SourcePackagePrefixWithInnerClasses/kotlinProject.ipr
similarity index 100%
rename from jps-plugin/testData/general/SourcePackagePrefixKnownIssueWithInnerClasses/kotlinProject.ipr
rename to jps-plugin/testData/general/SourcePackagePrefixWithInnerClasses/kotlinProject.ipr
diff --git a/jps-plugin/testData/general/SourcePackagePrefixKnownIssueWithInnerClasses/src/JavaWithInner.java b/jps-plugin/testData/general/SourcePackagePrefixWithInnerClasses/src/JavaWithInner.java
similarity index 100%
rename from jps-plugin/testData/general/SourcePackagePrefixKnownIssueWithInnerClasses/src/JavaWithInner.java
rename to jps-plugin/testData/general/SourcePackagePrefixWithInnerClasses/src/JavaWithInner.java
diff --git a/jps-plugin/testData/general/SourcePackagePrefixKnownIssueWithInnerClasses/src/test.kt b/jps-plugin/testData/general/SourcePackagePrefixWithInnerClasses/src/test.kt
similarity index 100%
rename from jps-plugin/testData/general/SourcePackagePrefixKnownIssueWithInnerClasses/src/test.kt
rename to jps-plugin/testData/general/SourcePackagePrefixWithInnerClasses/src/test.kt