diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/kotlin/org/jetbrains/kotlin/gradle/KotlinGradlePluginIT.kt b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/kotlin/org/jetbrains/kotlin/gradle/KotlinGradlePluginIT.kt
index b800a0bdba7..5b298ff3cb3 100644
--- a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/kotlin/org/jetbrains/kotlin/gradle/KotlinGradlePluginIT.kt
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/kotlin/org/jetbrains/kotlin/gradle/KotlinGradlePluginIT.kt
@@ -100,6 +100,18 @@ class KotlinGradleIT : BaseGradleIT() {
         }
     }
 
+    @Test
+    fun testKotlinCompileInFolderWithSpaces() {
+        val project = Project(projectName = "Project Path With Spaces")
+
+        project.build("build") {
+            assertSuccessful()
+            assertReportExists()
+            assertTasksExecuted(":compileKotlin", ":compileTestKotlin")
+            assertNotContains("Forcing System.gc")
+        }
+    }
+
     @Test
     fun testLogLevelForceGC() {
         val debugProject = Project("simpleProject", minLogLevel = LogLevel.LIFECYCLE)
diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/build.gradle b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/build.gradle
new file mode 100644
index 00000000000..2739c96398f
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/build.gradle	
@@ -0,0 +1,26 @@
+buildscript {
+    repositories {
+        mavenLocal()
+        mavenCentral()
+    }
+    dependencies {
+        classpath "org.jetbrains.kotlin:kotlin-gradle-plugin:$kotlin_version"
+    }
+}
+
+apply plugin: "kotlin"
+
+repositories {
+    mavenLocal()
+    mavenCentral()
+}
+
+dependencies {
+    compile 'com.google.guava:guava:12.0'
+    testCompile 'org.testng:testng:6.8'
+    compile "org.jetbrains.kotlin:kotlin-stdlib:$kotlin_version"
+}
+
+test {
+    useTestNG()
+}
diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/gradle.properties b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/gradle.properties
new file mode 100644
index 00000000000..c2e97feab87
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/gradle.properties	
@@ -0,0 +1 @@
+org.gradle.jvmargs=-Xmx1024m -XX:MaxPermSize=512m -Dkotlin.compiler.execution.strategy="out-of-process"
\ No newline at end of file
diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/Dummy.kt b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/Dummy.kt
new file mode 100644
index 00000000000..9c033c2608b
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/Dummy.kt	
@@ -0,0 +1,3 @@
+package demo
+
+class Dummy
diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/Greeter.kt b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/Greeter.kt
new file mode 100644
index 00000000000..accb6e430f8
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/Greeter.kt	
@@ -0,0 +1,3 @@
+package demo
+
+open class Greeter(val greeting: String)
diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/KotlinGreetingJoiner.kt b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/KotlinGreetingJoiner.kt
new file mode 100644
index 00000000000..e75fca8cbc6
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/KotlinGreetingJoiner.kt	
@@ -0,0 +1,18 @@
+package demo
+
+import com.google.common.base.Joiner
+import java.util.ArrayList
+
+class KotlinGreetingJoiner(val greeter: Greeter) {
+    val names = ArrayList<String?>()
+
+    fun addName(name: String?): Unit {
+        names.add(name)
+    }
+
+    fun getJoinedGreeting(): String? {
+        val joiner = Joiner.on(" and ").skipNulls();
+        return "${greeter.greeting} ${joiner.join(names)}"
+    }
+}
+
diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/dummyUtil.kt b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/dummyUtil.kt
new file mode 100644
index 00000000000..2bf9f3e293a
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/main/kotlin/dummyUtil.kt	
@@ -0,0 +1,3 @@
+package demo
+
+fun dummyFun() {}
\ No newline at end of file
diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/test/kotlin/TestGreeter.kt b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/test/kotlin/TestGreeter.kt
new file mode 100644
index 00000000000..978621e4ef5
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/test/kotlin/TestGreeter.kt	
@@ -0,0 +1,10 @@
+package demo
+
+import org.testng.Assert.assertEquals
+
+class TestGreeter {
+    fun test() {
+       val greeter = Greeter("Hi!")
+        assertEquals("Hi!", greeter.greeting)
+    }
+}
\ No newline at end of file
diff --git a/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/test/kotlin/TestKotlinGreetingJoiner.kt b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/test/kotlin/TestKotlinGreetingJoiner.kt
new file mode 100644
index 00000000000..2fec341a8e4
--- /dev/null
+++ b/libraries/tools/kotlin-gradle-plugin-integration-tests/src/test/resources/testProject/Project Path With Spaces/src/test/kotlin/TestKotlinGreetingJoiner.kt	
@@ -0,0 +1,17 @@
+package demo 
+
+import org.testng.Assert.assertEquals
+import org.testng.annotations.Test as test
+
+class TestKotlinGreetingJoiner() {
+    @test
+    fun test() {
+        val example : KotlinGreetingJoiner = KotlinGreetingJoiner(Greeter("Hi"))
+        example.addName("Harry")
+        example.addName("Ron")
+        example.addName("Hermione")
+
+        assertEquals(example.getJoinedGreeting(), "Hi Harry and Ron and Hermione")
+    }
+}
+
diff --git a/libraries/tools/kotlin-gradle-plugin/src/main/kotlin/org/jetbrains/kotlin/compilerRunner/reportUtils.kt b/libraries/tools/kotlin-gradle-plugin/src/main/kotlin/org/jetbrains/kotlin/compilerRunner/reportUtils.kt
index c4cc16d6dc4..943a557fed7 100644
--- a/libraries/tools/kotlin-gradle-plugin/src/main/kotlin/org/jetbrains/kotlin/compilerRunner/reportUtils.kt
+++ b/libraries/tools/kotlin-gradle-plugin/src/main/kotlin/org/jetbrains/kotlin/compilerRunner/reportUtils.kt
@@ -16,6 +16,7 @@
 
 package org.jetbrains.kotlin.compilerRunner
 
+import groovy.json.StringEscapeUtils
 import org.jetbrains.kotlin.cli.common.ExitCode
 import org.jetbrains.kotlin.cli.common.messages.CompilerMessageSourceLocation
 import org.jetbrains.kotlin.cli.common.messages.CompilerMessageSeverity
@@ -124,9 +125,10 @@ internal fun runToolInSeparateProcess(
 }
 
 private fun writeArgumentsToFile(directory: File, argsArray: Array<String>): File {
-    val compilerOptions = File.createTempFile(LocalDateTime.now().format(DateTimeFormatter.BASIC_ISO_DATE) + "_", ".compiler.options", directory)
+    val compilerOptions =
+        File.createTempFile(LocalDateTime.now().format(DateTimeFormatter.BASIC_ISO_DATE) + "_", ".compiler.options", directory)
     compilerOptions.deleteOnExit()
-    compilerOptions.writeText(argsArray.joinToString(" "))
+    compilerOptions.writeText(argsArray.joinToString(" ") { "\"${StringEscapeUtils.escapeJava(it)}\"" })
     return compilerOptions
 }