diff --git a/python/src/com/jetbrains/python/psi/impl/PyFileImpl.java b/python/src/com/jetbrains/python/psi/impl/PyFileImpl.java
index 95babb81c43e..c7892c0d7a53 100644
--- a/python/src/com/jetbrains/python/psi/impl/PyFileImpl.java
+++ b/python/src/com/jetbrains/python/psi/impl/PyFileImpl.java
@@ -91,7 +91,7 @@ public class PyFileImpl extends PsiFileBase implements PyFile, PyExpression {
         }
         if (PyNames.INIT_DOT_PY.equals(getName())) {
           final PyQualifiedName qName = fromImportStatement.getImportSourceQName();
-          if (qName != null) {
+          if (qName != null && !localDeclarations.containsKey(qName.toString())) {
             localDeclarations.put(qName.getLastComponent(), fromImportStatement);
           }
         }
diff --git a/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/FunctionAndSubmoduleNamedIdentically.py b/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/FunctionAndSubmoduleNamedIdentically.py
new file mode 100644
index 000000000000..c84fbca62660
--- /dev/null
+++ b/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/FunctionAndSubmoduleNamedIdentically.py
@@ -0,0 +1,3 @@
+import p1
+p1.m1
+#   <ref>
\ No newline at end of file
diff --git a/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/p1/__init__.py b/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/p1/__init__.py
new file mode 100644
index 000000000000..1393b3efc2c2
--- /dev/null
+++ b/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/p1/__init__.py
@@ -0,0 +1 @@
+from m1 import m1
\ No newline at end of file
diff --git a/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/p1/m1.py b/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/p1/m1.py
new file mode 100644
index 000000000000..e4d82ff966bf
--- /dev/null
+++ b/python/testData/resolve/multiFile/functionAndSubmoduleNamedIdentically/p1/m1.py
@@ -0,0 +1,2 @@
+def m1():
+    pass
\ No newline at end of file
diff --git a/python/testSrc/com/jetbrains/python/PyMultiFileResolveTest.java b/python/testSrc/com/jetbrains/python/PyMultiFileResolveTest.java
index ca95c75cccb0..7b0a50192206 100644
--- a/python/testSrc/com/jetbrains/python/PyMultiFileResolveTest.java
+++ b/python/testSrc/com/jetbrains/python/PyMultiFileResolveTest.java
@@ -381,6 +381,11 @@ public class PyMultiFileResolveTest extends PyResolveTestCase {
     assertResolvesTo(PyFile.class, "m2.py");
   }
 
+  // PY-6866
+  public void testFunctionAndSubmoduleNamedIdentically() {
+    assertResolvesTo(PyFunction.class, "m1");
+  }
+
   private void prepareTestDirectory() {
     final String testName = getTestName(true);
     myFixture.copyDirectoryToProject(testName, "");