diff --git a/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosisCompilerFirTestdataTestGenerated.java b/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosisCompilerFirTestdataTestGenerated.java
index 20dd9d1e9f6..681fa38430e 100644
--- a/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosisCompilerFirTestdataTestGenerated.java
+++ b/analysis/low-level-api-fir/tests/org/jetbrains/kotlin/analysis/low/level/api/fir/diagnostic/compiler/based/DiagnosisCompilerFirTestdataTestGenerated.java
@@ -608,6 +608,12 @@ public class DiagnosisCompilerFirTestdataTestGenerated extends AbstractDiagnosis
             runTest("compiler/fir/analysis-tests/testData/resolve/typeFromGetter.kt");
         }
 
+        @Test
+        @TestMetadata("typeParameterInBoundsLocalFunction.kt")
+        public void testTypeParameterInBoundsLocalFunction() throws Exception {
+            runTest("compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.kt");
+        }
+
         @Test
         @TestMetadata("typeParameterInPropertyReceiver.kt")
         public void testTypeParameterInPropertyReceiver() throws Exception {
diff --git a/compiler/fir/analysis-tests/legacy-fir-tests/tests-gen/org/jetbrains/kotlin/fir/LazyBodyIsNotTouchedTilContractsPhaseTestGenerated.java b/compiler/fir/analysis-tests/legacy-fir-tests/tests-gen/org/jetbrains/kotlin/fir/LazyBodyIsNotTouchedTilContractsPhaseTestGenerated.java
index 85ea98bf5f1..e8bc116e3f5 100644
--- a/compiler/fir/analysis-tests/legacy-fir-tests/tests-gen/org/jetbrains/kotlin/fir/LazyBodyIsNotTouchedTilContractsPhaseTestGenerated.java
+++ b/compiler/fir/analysis-tests/legacy-fir-tests/tests-gen/org/jetbrains/kotlin/fir/LazyBodyIsNotTouchedTilContractsPhaseTestGenerated.java
@@ -514,6 +514,11 @@ public class LazyBodyIsNotTouchedTilContractsPhaseTestGenerated extends Abstract
         runTest("compiler/fir/analysis-tests/testData/resolve/typeFromGetter.kt");
     }
 
+    @TestMetadata("typeParameterInBoundsLocalFunction.kt")
+    public void testTypeParameterInBoundsLocalFunction() throws Exception {
+        runTest("compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.kt");
+    }
+
     @TestMetadata("typeParameterInPropertyReceiver.kt")
     public void testTypeParameterInPropertyReceiver() throws Exception {
         runTest("compiler/fir/analysis-tests/testData/resolve/typeParameterInPropertyReceiver.kt");
diff --git a/compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.fir.txt b/compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.fir.txt
new file mode 100644
index 00000000000..ac95d8feb9e
--- /dev/null
+++ b/compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.fir.txt
@@ -0,0 +1,8 @@
+FILE: typeParameterInBoundsLocalFunction.kt
+    package test
+
+    public final fun f(): R|kotlin/Unit| {
+        local final fun <A, B : R|A|> f1(): R|kotlin/Unit| {
+        }
+
+    }
diff --git a/compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.kt b/compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.kt
new file mode 100644
index 00000000000..801d7972844
--- /dev/null
+++ b/compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.kt
@@ -0,0 +1,4 @@
+package test
+fun f() {
+    fun <A, B: A> f1() {}
+}
\ No newline at end of file
diff --git a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirDiagnosticTestGenerated.java b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirDiagnosticTestGenerated.java
index e6aaa5a0f65..663b7882872 100644
--- a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirDiagnosticTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirDiagnosticTestGenerated.java
@@ -608,6 +608,12 @@ public class FirDiagnosticTestGenerated extends AbstractFirDiagnosticTest {
             runTest("compiler/fir/analysis-tests/testData/resolve/typeFromGetter.kt");
         }
 
+        @Test
+        @TestMetadata("typeParameterInBoundsLocalFunction.kt")
+        public void testTypeParameterInBoundsLocalFunction() throws Exception {
+            runTest("compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.kt");
+        }
+
         @Test
         @TestMetadata("typeParameterInPropertyReceiver.kt")
         public void testTypeParameterInPropertyReceiver() throws Exception {
diff --git a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirDiagnosticsWithLightTreeTestGenerated.java b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirDiagnosticsWithLightTreeTestGenerated.java
index 2529fc6f2da..89a3898872f 100644
--- a/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirDiagnosticsWithLightTreeTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests-gen/org/jetbrains/kotlin/test/runners/FirDiagnosticsWithLightTreeTestGenerated.java
@@ -608,6 +608,12 @@ public class FirDiagnosticsWithLightTreeTestGenerated extends AbstractFirDiagnos
             runTest("compiler/fir/analysis-tests/testData/resolve/typeFromGetter.kt");
         }
 
+        @Test
+        @TestMetadata("typeParameterInBoundsLocalFunction.kt")
+        public void testTypeParameterInBoundsLocalFunction() throws Exception {
+            runTest("compiler/fir/analysis-tests/testData/resolve/typeParameterInBoundsLocalFunction.kt");
+        }
+
         @Test
         @TestMetadata("typeParameterInPropertyReceiver.kt")
         public void testTypeParameterInPropertyReceiver() throws Exception {
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirDeclarationsResolveTransformer.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirDeclarationsResolveTransformer.kt
index c52454c2c41..67d9c0cb183 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirDeclarationsResolveTransformer.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirDeclarationsResolveTransformer.kt
@@ -611,10 +611,10 @@ open class FirDeclarationsResolveTransformer(transformer: FirAbstractBodyResolve
             return simpleFunction
         }
 
-        doTransformTypeParameters(simpleFunction)
-
         val containingDeclaration = context.containerIfAny
         return context.withSimpleFunction(simpleFunction, session) {
+            doTransformTypeParameters(simpleFunction)
+
             // TODO: I think it worth creating something like runAllPhasesForLocalFunction
             if (containingDeclaration != null && containingDeclaration !is FirClass) {
                 // For class members everything should be already prepared
diff --git a/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35.fir.kt b/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35.fir.kt
index 238defcb89d..009ce7477cf 100644
--- a/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35.fir.kt
+++ b/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35.fir.kt
@@ -9,7 +9,7 @@ fun <T> Bar<T>.takeFoo(foo: Foo<out Any?>): Int  = 1
 class Inv<O>
 
 fun <K : <!FINAL_UPPER_BOUND!>Inv<out Inv<out Int>><!>> main() {
-    fun <T, S : <!UNRESOLVED_REFERENCE!>T<!>> Bar<T>.takeFoo(foo: Foo<in S>): String = ""
+    fun <T, S : T> Bar<T>.takeFoo(foo: Foo<in S>): String = ""
 
     val foo = Foo<K>()
     <!DEBUG_INFO_EXPRESSION_TYPE("kotlin.Int")!>Bar<Inv<in Inv<in Number>>>().takeFoo(foo)<!>
diff --git a/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35_Enabled.fir.kt b/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35_Enabled.fir.kt
deleted file mode 100644
index 5b978ffd14b..00000000000
--- a/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35_Enabled.fir.kt
+++ /dev/null
@@ -1,17 +0,0 @@
-// !LANGUAGE: +ForbidInferringTypeVariablesIntoEmptyIntersection
-// WITH_STDLIB
-
-class Foo<T>
-
-class Bar<T>
-
-fun <T> Bar<T>.takeFoo(foo: Foo<out Any?>): Int  = 1
-
-class Inv<O>
-
-fun <K : <!FINAL_UPPER_BOUND!>Inv<out Inv<out Int>><!>> main() {
-    fun <T, S : <!UNRESOLVED_REFERENCE!>T<!>> Bar<T>.takeFoo(foo: Foo<in S>): String = ""
-
-    val foo = Foo<K>()
-    <!DEBUG_INFO_EXPRESSION_TYPE("kotlin.Int")!>Bar<Inv<in Inv<in Number>>>().takeFoo(foo)<!>
-}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35_Enabled.kt b/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35_Enabled.kt
index cee3241561b..41f8f2a5522 100644
--- a/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35_Enabled.kt
+++ b/compiler/testData/diagnostics/tests/inference/emptyIntersectionTypes/kt45461_35_Enabled.kt
@@ -1,3 +1,4 @@
+// FIR_IDENTICAL
 // !LANGUAGE: +ForbidInferringTypeVariablesIntoEmptyIntersection
 // WITH_STDLIB
 
diff --git a/compiler/testData/diagnostics/tests/regressions/itselfAsUpperBoundLocal.fir.kt b/compiler/testData/diagnostics/tests/regressions/itselfAsUpperBoundLocal.fir.kt
index f876caeb314..828e254a3fc 100644
--- a/compiler/testData/diagnostics/tests/regressions/itselfAsUpperBoundLocal.fir.kt
+++ b/compiler/testData/diagnostics/tests/regressions/itselfAsUpperBoundLocal.fir.kt
@@ -1,4 +1,4 @@
 fun bar() {
-    fun <T: <!UNRESOLVED_REFERENCE!>T<!>?> foo() {}
-    <!INAPPLICABLE_CANDIDATE!>foo<!>()
+    fun <<!CYCLIC_GENERIC_UPPER_BOUND!>T: T?<!>> foo() {}
+    <!NEW_INFERENCE_NO_INFORMATION_FOR_PARAMETER!>foo<!>()
 }