diff --git a/compiler/backend/src/org/jetbrains/jet/codegen/FunctionCodegen.java b/compiler/backend/src/org/jetbrains/jet/codegen/FunctionCodegen.java
index c9fc22aa137..d91af314b59 100644
--- a/compiler/backend/src/org/jetbrains/jet/codegen/FunctionCodegen.java
+++ b/compiler/backend/src/org/jetbrains/jet/codegen/FunctionCodegen.java
@@ -25,6 +25,7 @@ import com.intellij.util.containers.ContainerUtil;
 import kotlin.Function1;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
+import org.jetbrains.jet.codegen.binding.CalculatedClosure;
 import org.jetbrains.jet.codegen.binding.CodegenBinding;
 import org.jetbrains.jet.codegen.bridges.Bridge;
 import org.jetbrains.jet.codegen.bridges.BridgesPackage;
@@ -36,6 +37,7 @@ import org.jetbrains.jet.codegen.state.GenerationState;
 import org.jetbrains.jet.codegen.state.JetTypeMapper;
 import org.jetbrains.jet.lang.descriptors.*;
 import org.jetbrains.jet.lang.descriptors.annotations.AnnotationDescriptor;
+import org.jetbrains.jet.lang.psi.JetClassOrObject;
 import org.jetbrains.jet.lang.psi.JetNamedFunction;
 import org.jetbrains.jet.lang.resolve.BindingContext;
 import org.jetbrains.jet.lang.resolve.DescriptorUtils;
@@ -514,9 +516,10 @@ public class FunctionCodegen extends ParentCodegenAware {
             @NotNull GenerationState state,
             @NotNull CallableMethod method,
             @NotNull ConstructorDescriptor constructorDescriptor,
-            @NotNull ClassBuilder classBuilder
+            @NotNull ClassBuilder classBuilder,
+            @NotNull JetClassOrObject classOrObject
     ) {
-        if (!isDefaultConstructorNeeded(state.getBindingContext(), constructorDescriptor)) {
+        if (!isEmptyConstructorNeeded(state.getBindingContext(), constructorDescriptor, classOrObject)) {
             return;
         }
         int flags = getVisibilityAccessFlag(constructorDescriptor);
@@ -550,7 +553,7 @@ public class FunctionCodegen extends ParentCodegenAware {
         String desc = JetTypeMapper.getDefaultDescriptor(method.getAsmMethod(), false);
         v.invokespecial(methodOwner.getInternalName(), "<init>", desc, false);
         v.areturn(Type.VOID_TYPE);
-        endVisit(mv, "default constructor for " + methodOwner.getInternalName(), null);
+        endVisit(mv, "default constructor for " + methodOwner.getInternalName(), classOrObject);
     }
 
     void generateDefaultIfNeeded(
@@ -739,9 +742,15 @@ public class FunctionCodegen extends ParentCodegenAware {
         return needed;
     }
 
-    private static boolean isDefaultConstructorNeeded(@NotNull BindingContext context, @NotNull ConstructorDescriptor constructorDescriptor) {
+    private static boolean isEmptyConstructorNeeded(
+            @NotNull BindingContext context,
+            @NotNull ConstructorDescriptor constructorDescriptor,
+            @NotNull JetClassOrObject classOrObject
+    ) {
         ClassDescriptor classDescriptor = constructorDescriptor.getContainingDeclaration();
 
+        if (classOrObject.isLocal()) return false;
+
         if (CodegenBinding.canHaveOuter(context, classDescriptor)) return false;
 
         if (classDescriptor.getVisibility() == Visibilities.PRIVATE ||
diff --git a/compiler/backend/src/org/jetbrains/jet/codegen/ImplementationBodyCodegen.java b/compiler/backend/src/org/jetbrains/jet/codegen/ImplementationBodyCodegen.java
index ed6f66f56ea..df21937bbdf 100644
--- a/compiler/backend/src/org/jetbrains/jet/codegen/ImplementationBodyCodegen.java
+++ b/compiler/backend/src/org/jetbrains/jet/codegen/ImplementationBodyCodegen.java
@@ -1151,7 +1151,7 @@ public class ImplementationBodyCodegen extends ClassBodyCodegen {
                                                 DefaultParameterValueLoader.DEFAULT, null);
 
         CallableMethod callableMethod = typeMapper.mapToCallableMethod(constructorDescriptor);
-        FunctionCodegen.generateConstructorWithoutParametersIfNeeded(state, callableMethod, constructorDescriptor, v);
+        FunctionCodegen.generateConstructorWithoutParametersIfNeeded(state, callableMethod, constructorDescriptor, v, myClass);
 
         if (isClassObject(descriptor)) {
             context.recordSyntheticAccessorIfNeeded(constructorDescriptor, bindingContext);
diff --git a/compiler/testData/codegen/box/localClasses/kt3584.kt b/compiler/testData/codegen/box/localClasses/kt3584.kt
new file mode 100644
index 00000000000..06dd0e8e2cb
--- /dev/null
+++ b/compiler/testData/codegen/box/localClasses/kt3584.kt
@@ -0,0 +1,13 @@
+fun box(): String {
+    val s = "captured";
+
+    class A(val param: String = "OK") {
+        val s2 = s + param
+    }
+
+    if (A().s2 != "capturedOK") return "fail 1: ${A().s2}"
+
+    if (A("Test").s2 != "capturedTest") return "fail 1: ${A("Test").s2}"
+
+    return "OK"
+}
\ No newline at end of file
diff --git a/compiler/tests/org/jetbrains/jet/codegen/generated/BlackBoxCodegenTestGenerated.java b/compiler/tests/org/jetbrains/jet/codegen/generated/BlackBoxCodegenTestGenerated.java
index 9daa9b6e477..33ed7968b1c 100644
--- a/compiler/tests/org/jetbrains/jet/codegen/generated/BlackBoxCodegenTestGenerated.java
+++ b/compiler/tests/org/jetbrains/jet/codegen/generated/BlackBoxCodegenTestGenerated.java
@@ -4151,6 +4151,12 @@ public class BlackBoxCodegenTestGenerated extends AbstractBlackBoxCodegenTest {
             doTest(fileName);
         }
         
+        @TestMetadata("kt3584.kt")
+        public void testKt3584() throws Exception {
+            String fileName = JetTestUtils.navigationMetadata("compiler/testData/codegen/box/localClasses/kt3584.kt");
+            doTest(fileName);
+        }
+        
         @TestMetadata("localClass.kt")
         public void testLocalClass() throws Exception {
             String fileName = JetTestUtils.navigationMetadata("compiler/testData/codegen/box/localClasses/localClass.kt");