diff --git a/python/src/com/jetbrains/python/packaging/PyPackageUtil.java b/python/src/com/jetbrains/python/packaging/PyPackageUtil.java
index 0bcdbb56f7e9..9555dfd12c1d 100644
--- a/python/src/com/jetbrains/python/packaging/PyPackageUtil.java
+++ b/python/src/com/jetbrains/python/packaging/PyPackageUtil.java
@@ -312,10 +312,14 @@ public class PyPackageUtil {
     VfsUtilCore.visitChildrenRecursively(root, new VirtualFileVisitor() {
       @Override
       public boolean visitFile(@NotNull VirtualFile file) {
+        if (file.equals(root)) {
+          return true;
+        }
         if (!fileIndex.isExcluded(file) && file.isDirectory() && file.findChild(PyNames.INIT_DOT_PY) != null) {
           results.add(VfsUtilCore.getRelativePath(file, root, '.'));
+          return true;
         }
-        return true;
+        return false;
       }
     });
   }
diff --git a/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresChildrenOfDirectoriesWithoutInitPy/bin/pkg/__init__.py b/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresChildrenOfDirectoriesWithoutInitPy/bin/pkg/__init__.py
new file mode 100644
index 000000000000..e69de29bb2d1
diff --git a/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresChildrenOfDirectoriesWithoutInitPy/project/__init__.py b/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresChildrenOfDirectoriesWithoutInitPy/project/__init__.py
new file mode 100644
index 000000000000..e69de29bb2d1
diff --git a/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresChildrenOfDirectoriesWithoutInitPy/project/pkg/__init__.py b/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresChildrenOfDirectoriesWithoutInitPy/project/pkg/__init__.py
new file mode 100644
index 000000000000..e69de29bb2d1
diff --git a/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots/env/site-packages/lib/__init__.py b/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots/env/site-packages/lib/__init__.py
new file mode 100644
index 000000000000..e69de29bb2d1
diff --git a/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots/env/site-packages/lib/pkg/__init__.py b/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots/env/site-packages/lib/pkg/__init__.py
new file mode 100644
index 000000000000..e69de29bb2d1
diff --git a/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots/project/__init__.py b/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots/project/__init__.py
new file mode 100644
index 000000000000..e69de29bb2d1
diff --git a/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots/project/pkg/__init__.py b/python/testData/packaging/PyPackageUtil/CollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots/project/pkg/__init__.py
new file mode 100644
index 000000000000..e69de29bb2d1
diff --git a/python/testSrc/com/jetbrains/python/packaging/PyPackageUtilTest.java b/python/testSrc/com/jetbrains/python/packaging/PyPackageUtilTest.java
index 439b3eb3494c..a347f283184b 100644
--- a/python/testSrc/com/jetbrains/python/packaging/PyPackageUtilTest.java
+++ b/python/testSrc/com/jetbrains/python/packaging/PyPackageUtilTest.java
@@ -18,6 +18,7 @@ package com.jetbrains.python.packaging;
 import com.google.common.collect.ImmutableMap;
 import com.intellij.openapi.command.WriteCommandAction;
 import com.intellij.openapi.module.Module;
+import com.intellij.openapi.vfs.VirtualFile;
 import com.jetbrains.python.fixtures.PyTestCase;
 import com.jetbrains.python.psi.LanguageLevel;
 import com.jetbrains.python.psi.PyCallExpression;
@@ -264,4 +265,20 @@ public class PyPackageUtilTest extends PyTestCase {
       assertEquals(text, argument.getText());
     }
   }
+
+  // PY-17241
+  public void testCollectingPackageNamesIgnoresExcludedDirectoriesWithSdkRoots() {
+    addExcludedRoot("env");
+    final VirtualFile sdkRoot = myFixture.findFileInTempDir("env/site-packages");
+    runWithAdditionalClassEntryInSdkRoots(sdkRoot, () -> {
+      final List<String> collected = PyPackageUtil.getPackageNames(myFixture.getModule());
+      assertSameElements(collected, "project", "project.pkg");
+    });
+  }
+
+  // PY-17241
+  public void testCollectingPackageNamesIgnoresChildrenOfDirectoriesWithoutInitPy() {
+    final List<String> collected = PyPackageUtil.getPackageNames(myFixture.getModule());
+    assertSameElements(collected, "project", "project.pkg");
+  }
 }
\ No newline at end of file