diff --git a/java/java-impl-refactorings/src/com/intellij/refactoring/inline/InlineLocalHandler.java b/java/java-impl-refactorings/src/com/intellij/refactoring/inline/InlineLocalHandler.java
index 7612c072cbac..c263df942838 100644
--- a/java/java-impl-refactorings/src/com/intellij/refactoring/inline/InlineLocalHandler.java
+++ b/java/java-impl-refactorings/src/com/intellij/refactoring/inline/InlineLocalHandler.java
@@ -374,6 +374,8 @@ public final class InlineLocalHandler extends JavaInlineActionHandler {
     final SmartPointerManager pointerManager = SmartPointerManager.getInstance(project);
     for (PsiElement element : refsToInline) {
       PsiJavaCodeReferenceElement refElement = (PsiJavaCodeReferenceElement)element;
+      // Erroneous method call which is resolved to a local variable: simply skip it, otherwise we may create incorrect PSI 
+      if (refElement.getParent() instanceof PsiMethodCallExpression) continue;
       pointers.add(pointerManager.createSmartPsiElementPointer(InlineUtil.inlineVariable(local, defToInline, refElement)));
     }
     return pointers;
diff --git a/java/java-tests/testData/refactoring/inlineLocal/LambdaInitialization.java b/java/java-tests/testData/refactoring/inlineLocal/LambdaInitialization.java
new file mode 100644
index 000000000000..691c9a0c5270
--- /dev/null
+++ b/java/java-tests/testData/refactoring/inlineLocal/LambdaInitialization.java
@@ -0,0 +1,8 @@
+public class LambdaInitialization {
+  Runnable foo() {
+    Runnable <caret>s = () -> {
+      s();
+    };
+    return s;
+  }
+}
\ No newline at end of file
diff --git a/java/java-tests/testData/refactoring/inlineLocal/LambdaInitialization.java.after b/java/java-tests/testData/refactoring/inlineLocal/LambdaInitialization.java.after
new file mode 100644
index 000000000000..ca649168c22f
--- /dev/null
+++ b/java/java-tests/testData/refactoring/inlineLocal/LambdaInitialization.java.after
@@ -0,0 +1,7 @@
+public class LambdaInitialization {
+  Runnable foo() {
+      return () -> {
+        s();
+      };
+  }
+}
\ No newline at end of file
diff --git a/java/java-tests/testSrc/com/intellij/java/refactoring/inline/InlineLocalTest.java b/java/java-tests/testSrc/com/intellij/java/refactoring/inline/InlineLocalTest.java
index 110b053286e3..1c64fcd7fe0d 100644
--- a/java/java-tests/testSrc/com/intellij/java/refactoring/inline/InlineLocalTest.java
+++ b/java/java-tests/testSrc/com/intellij/java/refactoring/inline/InlineLocalTest.java
@@ -356,6 +356,8 @@ public class InlineLocalTest extends LightJavaCodeInsightTestCase {
   public void testCompositeAssignment() { doTest(); }
   
   public void testCompositeAssignmentCast() { doTest(); }
+  
+  public void testLambdaInitialization() { doTest(); }
 
   private void doTest(String conflictMessage) {
     try {