diff --git a/compiler/fir/checkers/src/org/jetbrains/kotlin/fir/analysis/collectors/SimpleDiagnosticsCollector.kt b/compiler/fir/checkers/src/org/jetbrains/kotlin/fir/analysis/collectors/SimpleDiagnosticsCollector.kt
index d4e1d341ead..e59742480cc 100644
--- a/compiler/fir/checkers/src/org/jetbrains/kotlin/fir/analysis/collectors/SimpleDiagnosticsCollector.kt
+++ b/compiler/fir/checkers/src/org/jetbrains/kotlin/fir/analysis/collectors/SimpleDiagnosticsCollector.kt
@@ -5,10 +5,9 @@
 
 package org.jetbrains.kotlin.fir.analysis.collectors
 
+import org.jetbrains.kotlin.diagnostics.DiagnosticReporter
 import org.jetbrains.kotlin.fir.FirSession
 import org.jetbrains.kotlin.fir.analysis.checkers.context.MutableCheckerContext
-import org.jetbrains.kotlin.fir.analysis.collectors.components.AbstractDiagnosticCollectorComponent
-import org.jetbrains.kotlin.diagnostics.DiagnosticReporter
 import org.jetbrains.kotlin.fir.resolve.ScopeSession
 import org.jetbrains.kotlin.fir.resolve.transformers.ReturnTypeCalculatorForFullBodyResolve
 
@@ -21,7 +20,7 @@ class SimpleDiagnosticsCollector(
         return CheckerRunningDiagnosticCollectorVisitor(
             MutableCheckerContext(
                 this,
-                ReturnTypeCalculatorForFullBodyResolve
+                ReturnTypeCalculatorForFullBodyResolve.Default
             ),
             components
         )
diff --git a/compiler/fir/fir2ir/src/org/jetbrains/kotlin/fir/backend/generators/AdapterGenerator.kt b/compiler/fir/fir2ir/src/org/jetbrains/kotlin/fir/backend/generators/AdapterGenerator.kt
index e8848451938..cf735ee9a9d 100644
--- a/compiler/fir/fir2ir/src/org/jetbrains/kotlin/fir/backend/generators/AdapterGenerator.kt
+++ b/compiler/fir/fir2ir/src/org/jetbrains/kotlin/fir/backend/generators/AdapterGenerator.kt
@@ -567,7 +567,7 @@ internal class AdapterGenerator(
         }
         // On the other hand, the actual type should be either a functional type or a subtype of a class that has a contributed `invoke`.
         val expectedFunctionType = getFunctionTypeForPossibleSamType(parameter.returnTypeRef.coneType)
-        return argument.isFunctional(session, scopeSession, expectedFunctionType, ReturnTypeCalculatorForFullBodyResolve)
+        return argument.isFunctional(session, scopeSession, expectedFunctionType, ReturnTypeCalculatorForFullBodyResolve.Default)
     }
 
     internal fun getFunctionTypeForPossibleSamType(parameterType: ConeKotlinType): ConeKotlinType? {
diff --git a/compiler/fir/providers/src/org/jetbrains/kotlin/fir/resolve/transformers/ReturnTypeCalculatorForFullBodyResolve.kt b/compiler/fir/providers/src/org/jetbrains/kotlin/fir/resolve/transformers/ReturnTypeCalculatorForFullBodyResolve.kt
index d85c3856b6a..99aa6ec1d3b 100644
--- a/compiler/fir/providers/src/org/jetbrains/kotlin/fir/resolve/transformers/ReturnTypeCalculatorForFullBodyResolve.kt
+++ b/compiler/fir/providers/src/org/jetbrains/kotlin/fir/resolve/transformers/ReturnTypeCalculatorForFullBodyResolve.kt
@@ -13,7 +13,23 @@ import org.jetbrains.kotlin.fir.scopes.FakeOverrideTypeCalculator
 import org.jetbrains.kotlin.fir.types.FirResolvedTypeRef
 import org.jetbrains.kotlin.fir.types.builder.buildErrorTypeRef
 
-object ReturnTypeCalculatorForFullBodyResolve : ReturnTypeCalculator() {
+class ReturnTypeCalculatorForFullBodyResolve private constructor(
+    private val diagnosticKind: DiagnosticKind,
+    private val reason: String,
+) : ReturnTypeCalculator() {
+    companion object {
+        // It's actual only for local functions because simple members are being resolved at another phase.
+        // Local properties are just unresolved if they are used recursively.
+        val Default = ReturnTypeCalculatorForFullBodyResolve(
+            DiagnosticKind.RecursionInImplicitTypes,
+            "Recursion with local function"
+        )
+        val Contract = ReturnTypeCalculatorForFullBodyResolve(
+            DiagnosticKind.InferenceError,
+            "Cannot calculate return type during full-body resolution (local class/object?)"
+        )
+    }
+
     override val fakeOverrideTypeCalculator: FakeOverrideTypeCalculator
         get() = FakeOverrideTypeCalculator.Forced
 
@@ -24,11 +40,6 @@ object ReturnTypeCalculatorForFullBodyResolve : ReturnTypeCalculator() {
             return FakeOverrideTypeCalculator.Forced.computeReturnType(declaration)
         }
 
-        return buildErrorTypeRef {
-            diagnostic = ConeSimpleDiagnostic(
-                "Cannot calculate return type during full-body resolution (local class/object?): ${declaration.render()}",
-                DiagnosticKind.InferenceError
-            )
-        }
+        return buildErrorTypeRef { diagnostic = ConeSimpleDiagnostic("$reason: ${declaration.render()}", diagnosticKind) }
     }
 }
diff --git a/compiler/fir/providers/src/org/jetbrains/kotlin/fir/scopes/impl/FirTypeIntersectionScopeContext.kt b/compiler/fir/providers/src/org/jetbrains/kotlin/fir/scopes/impl/FirTypeIntersectionScopeContext.kt
index c257da18c56..d5bd84e5ca3 100644
--- a/compiler/fir/providers/src/org/jetbrains/kotlin/fir/scopes/impl/FirTypeIntersectionScopeContext.kt
+++ b/compiler/fir/providers/src/org/jetbrains/kotlin/fir/scopes/impl/FirTypeIntersectionScopeContext.kt
@@ -154,7 +154,7 @@ class FirTypeIntersectionScopeContext(
                 overrideService.extractBothWaysOverridable(allMembersWithScope.maxByVisibility(), allMembersWithScope, overrideChecker)
             val group = groupWithPrivate.filter { !Visibilities.isPrivate(it.member.fir.visibility) }.ifEmpty { groupWithPrivate }
             val nonSubsumed = if (forClassUseSiteScope) group.nonSubsumed() else group
-            val mostSpecific = overrideService.selectMostSpecificMembers(nonSubsumed, ReturnTypeCalculatorForFullBodyResolve)
+            val mostSpecific = overrideService.selectMostSpecificMembers(nonSubsumed, ReturnTypeCalculatorForFullBodyResolve.Default)
             val nonTrivial = if (forClassUseSiteScope) {
                 // Create a non-trivial intersection override when the base methods come from different scopes,
                 // even if one of them is more specific than the others, i.e. when there is more than one method that is not subsumed.
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirAbstractBodyResolveTransformerDispatcher.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirAbstractBodyResolveTransformerDispatcher.kt
index 51b4c51b7f1..32262f46256 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirAbstractBodyResolveTransformerDispatcher.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirAbstractBodyResolveTransformerDispatcher.kt
@@ -24,7 +24,7 @@ abstract class FirAbstractBodyResolveTransformerDispatcher(
     phase: FirResolvePhase,
     override var implicitTypeOnly: Boolean,
     scopeSession: ScopeSession,
-    val returnTypeCalculator: ReturnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve,
+    val returnTypeCalculator: ReturnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve.Default,
     outerBodyResolveContext: BodyResolveContext? = null,
     val firResolveContextCollector: FirResolveContextCollector? = null,
 ) : FirAbstractBodyResolveTransformer(phase) {
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirBodyResolveTransformer.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirBodyResolveTransformer.kt
index 545d11dfccc..9eb00cbc85c 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirBodyResolveTransformer.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirBodyResolveTransformer.kt
@@ -6,7 +6,7 @@
 package org.jetbrains.kotlin.fir.resolve.transformers.body.resolve
 
 import org.jetbrains.kotlin.fir.FirSession
-import org.jetbrains.kotlin.fir.declarations.*
+import org.jetbrains.kotlin.fir.declarations.FirResolvePhase
 import org.jetbrains.kotlin.fir.resolve.ScopeSession
 import org.jetbrains.kotlin.fir.resolve.transformers.ReturnTypeCalculator
 import org.jetbrains.kotlin.fir.resolve.transformers.ReturnTypeCalculatorForFullBodyResolve
@@ -16,7 +16,7 @@ open class FirBodyResolveTransformer(
     phase: FirResolvePhase,
     implicitTypeOnly: Boolean,
     scopeSession: ScopeSession,
-    returnTypeCalculator: ReturnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve,
+    returnTypeCalculator: ReturnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve.Default,
     outerBodyResolveContext: BodyResolveContext? = null,
     firResolveContextCollector: FirResolveContextCollector? = null
 ) : FirAbstractBodyResolveTransformerDispatcher(
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirImplicitBodyResolve.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirImplicitBodyResolve.kt
index 95cb830eb5d..f353bd54bc9 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirImplicitBodyResolve.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/body/resolve/FirImplicitBodyResolve.kt
@@ -24,7 +24,6 @@ import org.jetbrains.kotlin.fir.resolve.transformers.ReturnTypeCalculatorForFull
 import org.jetbrains.kotlin.fir.resolve.transformers.contracts.runContractResolveForLocalClass
 import org.jetbrains.kotlin.fir.scopes.FakeOverrideTypeCalculator
 import org.jetbrains.kotlin.fir.scopes.fakeOverrideSubstitution
-import org.jetbrains.kotlin.fir.delegatedWrapperData
 import org.jetbrains.kotlin.fir.scopes.impl.originalForWrappedIntegerOperator
 import org.jetbrains.kotlin.fir.symbols.impl.FirCallableSymbol
 import org.jetbrains.kotlin.fir.symbols.impl.FirSyntheticPropertySymbol
@@ -193,7 +192,7 @@ open class ReturnTypeCalculatorWithJump(
     override fun tryCalculateReturnTypeOrNull(declaration: FirCallableDeclaration): FirResolvedTypeRef {
         // Local declarations must be handled by `ReturnTypeCalculatorForFullBodyResolve` to avoid resolution cycles in LL FIR.
         if (declaration.visibility == Visibilities.Local) {
-            return ReturnTypeCalculatorForFullBodyResolve.tryCalculateReturnType(declaration)
+            return ReturnTypeCalculatorForFullBodyResolve.Default.tryCalculateReturnType(declaration)
         }
 
         if (declaration is FirValueParameter && declaration.returnTypeRef is FirImplicitTypeRef) {
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/contracts/FirAbstractContractResolveTransformerDispatcher.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/contracts/FirAbstractContractResolveTransformerDispatcher.kt
index 1bc653850ce..77f3ad425aa 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/contracts/FirAbstractContractResolveTransformerDispatcher.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/contracts/FirAbstractContractResolveTransformerDispatcher.kt
@@ -25,6 +25,7 @@ import org.jetbrains.kotlin.fir.moduleData
 import org.jetbrains.kotlin.fir.references.builder.buildSimpleNamedReference
 import org.jetbrains.kotlin.fir.resolve.ResolutionMode
 import org.jetbrains.kotlin.fir.resolve.ScopeSession
+import org.jetbrains.kotlin.fir.resolve.transformers.ReturnTypeCalculatorForFullBodyResolve
 import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.BodyResolveContext
 import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.FirAbstractBodyResolveTransformerDispatcher
 import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.FirDeclarationsResolveTransformer
@@ -45,6 +46,7 @@ abstract class FirAbstractContractResolveTransformerDispatcher(
     FirResolvePhase.CONTRACTS,
     implicitTypeOnly = false,
     scopeSession,
+    returnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve.Contract,
     outerBodyResolveContext = outerBodyResolveContext
 ) {
     final override val expressionsTransformer: FirExpressionsResolveTransformer =
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/contracts/FirContractResolveTransformerAdapter.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/contracts/FirContractResolveTransformerAdapter.kt
index 11d6a2bc45a..e66f1d5aee7 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/contracts/FirContractResolveTransformerAdapter.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/contracts/FirContractResolveTransformerAdapter.kt
@@ -49,7 +49,7 @@ fun <F : FirClassLikeDeclaration> F.runContractResolveForLocalClass(
     targetedClasses: Set<FirClassLikeDeclaration>
 ): F {
     val newContext = outerBodyResolveContext.createSnapshotForLocalClasses(
-        ReturnTypeCalculatorForFullBodyResolve,
+        ReturnTypeCalculatorForFullBodyResolve.Contract,
         targetedClasses
     )
     val transformer = FirContractResolveTransformer(session, scopeSession, newContext)
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/plugin/FirAnnotationArgumentsMappingTransformer.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/plugin/FirAnnotationArgumentsMappingTransformer.kt
index 0d13a22fe7c..a9b4e88f45d 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/plugin/FirAnnotationArgumentsMappingTransformer.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/plugin/FirAnnotationArgumentsMappingTransformer.kt
@@ -15,11 +15,7 @@ import org.jetbrains.kotlin.fir.resolve.ResolutionMode
 import org.jetbrains.kotlin.fir.resolve.ScopeSession
 import org.jetbrains.kotlin.fir.resolve.transformers.ReturnTypeCalculator
 import org.jetbrains.kotlin.fir.resolve.transformers.ReturnTypeCalculatorForFullBodyResolve
-import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.BodyResolveContext
-import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.FirAbstractBodyResolveTransformerDispatcher
-import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.FirDeclarationsResolveTransformer
-import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.FirExpressionsResolveTransformer
-import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.FirResolveContextCollector
+import org.jetbrains.kotlin.fir.resolve.transformers.body.resolve.*
 import org.jetbrains.kotlin.fir.visitors.transformSingle
 
 open class FirAnnotationArgumentsMappingTransformer(
@@ -27,7 +23,7 @@ open class FirAnnotationArgumentsMappingTransformer(
     scopeSession: ScopeSession,
     resolvePhase: FirResolvePhase,
     outerBodyResolveContext: BodyResolveContext? = null,
-    returnTypeCalculator: ReturnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve,
+    returnTypeCalculator: ReturnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve.Default,
     firResolveContextCollector: FirResolveContextCollector? = null,
 ) : FirAbstractBodyResolveTransformerDispatcher(
     session,
diff --git a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/plugin/FirAnnotationArgumentsResolveTransformer.kt b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/plugin/FirAnnotationArgumentsResolveTransformer.kt
index 782b0f0bb47..4bee3df4c65 100644
--- a/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/plugin/FirAnnotationArgumentsResolveTransformer.kt
+++ b/compiler/fir/resolve/src/org/jetbrains/kotlin/fir/resolve/transformers/plugin/FirAnnotationArgumentsResolveTransformer.kt
@@ -34,7 +34,7 @@ open class FirAnnotationArgumentsResolveTransformer(
     scopeSession: ScopeSession,
     resolvePhase: FirResolvePhase,
     outerBodyResolveContext: BodyResolveContext? = null,
-    returnTypeCalculator: ReturnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve,
+    returnTypeCalculator: ReturnTypeCalculator = ReturnTypeCalculatorForFullBodyResolve.Default,
     firResolveContextCollector: FirResolveContextCollector? = null,
 ) : FirAbstractBodyResolveTransformerDispatcher(
     session,
diff --git a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/localFactorial.fir.kt b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/localFactorial.fir.kt
index fc52c00306a..b1ab33fd53f 100644
--- a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/localFactorial.fir.kt
+++ b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/localFactorial.fir.kt
@@ -2,7 +2,7 @@
 fun foo() {
     fun fact(n: Int) = {
         if (n > 0) {
-            fact(n - 1) <!UNRESOLVED_REFERENCE!>*<!> n
+            <!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>fact(n - 1)<!> <!UNRESOLVED_REFERENCE!>*<!> n
         }
         else {
             1
diff --git a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/recursiveFun.fir.kt b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/recursiveFun.fir.kt
index a4b6e0861eb..bd777a778b3 100644
--- a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/recursiveFun.fir.kt
+++ b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/recursiveFun.fir.kt
@@ -1,3 +1,3 @@
 fun foo() {
-    fun bar() = (fun() = bar())
+    fun bar() = (fun() = <!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>bar()<!>)
 }
diff --git a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/recursiveLambda.fir.kt b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/recursiveLambda.fir.kt
index 962d4b4eadb..8b0aeb2a0a4 100644
--- a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/recursiveLambda.fir.kt
+++ b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/recursiveLambda.fir.kt
@@ -1,5 +1,5 @@
 fun foo() {
     fun bar() = {
-        bar()
+        <!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM, TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>bar()<!>
     }
-}
\ No newline at end of file
+}
diff --git a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/selfCall.fir.kt b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/selfCall.fir.kt
index 903e4dcceca..54381ac4650 100644
--- a/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/selfCall.fir.kt
+++ b/compiler/testData/diagnostics/tests/inference/recursiveLocalFuns/selfCall.fir.kt
@@ -1,8 +1,8 @@
 fun foo() {
-    fun bar1() = bar1()
+    fun bar1() = <!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>bar1()<!>
 
-    fun bar2() = 1 <!OVERLOAD_RESOLUTION_AMBIGUITY!>+<!> bar2()
-    fun bar3() = id(bar3())
+    fun bar2() = 1 <!OVERLOAD_RESOLUTION_AMBIGUITY!>+<!> <!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>bar2()<!>
+    fun bar3() = id(<!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>bar3()<!>)
 }
 
 fun <T> id(x: T) = x
diff --git a/compiler/testData/diagnostics/tests/regressions/kt9384.fir.kt b/compiler/testData/diagnostics/tests/regressions/kt9384.fir.kt
index 239a81e2aad..14130092f04 100644
--- a/compiler/testData/diagnostics/tests/regressions/kt9384.fir.kt
+++ b/compiler/testData/diagnostics/tests/regressions/kt9384.fir.kt
@@ -3,10 +3,10 @@ fun main(args: Array<String>) {
     fun f() = run {
         <!WRONG_MODIFIER_TARGET!>private<!> class C {
             private fun foo() {
-                f().<!UNRESOLVED_REFERENCE!>foo<!>();
+                <!TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM!>f()<!>.<!UNRESOLVED_REFERENCE!>foo<!>();
 
             }
         }
         C()
     }
-}
\ No newline at end of file
+}