diff --git a/java/java-impl/src/com/intellij/codeInsight/intention/ReplaceConstructorWithFactoryAction.java b/java/java-impl/src/com/intellij/codeInsight/intention/ReplaceConstructorWithFactoryAction.java
index d399273bccc0..7f7b5f0b013d 100644
--- a/java/java-impl/src/com/intellij/codeInsight/intention/ReplaceConstructorWithFactoryAction.java
+++ b/java/java-impl/src/com/intellij/codeInsight/intention/ReplaceConstructorWithFactoryAction.java
@@ -52,7 +52,8 @@ public class ReplaceConstructorWithFactoryAction implements ModCommandAction {
     if (constructorOrClass == null) return ModCommands.nop();
 
     List<PsiClass> targets = StreamEx.iterate(constructorOrClass, Objects::nonNull, PsiMember::getContainingClass)
-      .select(PsiClass.class).toList();
+      .select(PsiClass.class).filter(cls -> cls.hasModifierProperty(PsiModifier.STATIC) || cls.getContainingClass() == null)
+      .toList();
     SmartPsiElementPointer<PsiMember> constructorOrClassPtr = SmartPointerManager.createPointer(constructorOrClass);
     List<ModCommandAction> options =
       ContainerUtil.map(targets, target -> ModCommands.psiUpdateStep(
@@ -91,7 +92,7 @@ public class ReplaceConstructorWithFactoryAction implements ModCommandAction {
     PsiClass wrContainingClass = updater.getWritable(
       constructorOrClass instanceof PsiClass cls ? cls : Objects.requireNonNull(constructorOrClass.getContainingClass()));
     PsiReferenceExpression classReferenceExpression = factory.createReferenceExpression(targetClass);
-    String factoryName = suggestName(wrContainingClass);
+    String factoryName = suggestName(targetClass, Objects.requireNonNull(wrContainingClass.getName()));
     PsiReferenceExpression qualifiedMethodReference = (PsiReferenceExpression)factory.createExpressionFromText("A." + factoryName, null);
     PsiMethod constructor = ObjectUtils.tryCast(constructorOrClass, PsiMethod.class);
 
@@ -128,11 +129,10 @@ public class ReplaceConstructorWithFactoryAction implements ModCommandAction {
     }
   }
 
-  private static String suggestName(PsiClass psiClass) {
+  private static String suggestName(@NotNull PsiClass psiClass, @NotNull String baseName) {
     int i = 0;
-    String className = psiClass.getName();
     String[] baseNames =
-      {"create" + className, "new" + className, "get" + className, "createInstance", "getInstance", "newInstance", "create"};
+      {"create" + baseName, "new" + baseName, "get" + baseName, "createInstance", "getInstance", "newInstance", "create"};
     while (true) {
       for (String name : baseNames) {
         String finalName = name + (i == 0 ? "" : i);
diff --git a/java/java-tests/testData/refactoring/replaceConstructorWithFactory/afterNestedClass.java b/java/java-tests/testData/refactoring/replaceConstructorWithFactory/afterNestedClass.java
new file mode 100644
index 000000000000..0d837d21d5a9
--- /dev/null
+++ b/java/java-tests/testData/refactoring/replaceConstructorWithFactory/afterNestedClass.java
@@ -0,0 +1,20 @@
+class OuterClass {
+    static InnerClass createInnerClass(int _i) {
+      return newInnerClass(_i);
+    }
+
+    static InnerClass newInnerClass(int _i) {
+        return new InnerClass(_i);
+    }
+
+    static class InnerClass {
+        int i;
+        private InnerClass(int _i) {
+            i = _i;
+        }
+    }
+    InnerClass myInner = newInnerClass(27);
+    static int method() {
+        InnerClass inner = newInnerClass(15);
+    }
+}
\ No newline at end of file
diff --git a/java/java-tests/testData/refactoring/replaceConstructorWithFactory/afterNestedClass2.java b/java/java-tests/testData/refactoring/replaceConstructorWithFactory/afterNestedClass2.java
new file mode 100644
index 000000000000..e1106b9156c9
--- /dev/null
+++ b/java/java-tests/testData/refactoring/replaceConstructorWithFactory/afterNestedClass2.java
@@ -0,0 +1,16 @@
+class OuterClass {
+    static class InnerClass {
+        int i;
+        private InnerClass(int _i) {
+            i = _i;
+        }
+
+        static InnerClass createInnerClass(int _i) {
+            return new InnerClass(_i);
+        }
+    }
+    InnerClass myInner = InnerClass.createInnerClass(27);
+    static int method() {
+        InnerClass inner = InnerClass.createInnerClass(15);
+    }
+}
\ No newline at end of file
diff --git a/java/java-tests/testData/refactoring/replaceConstructorWithFactory/beforeNestedClass.java b/java/java-tests/testData/refactoring/replaceConstructorWithFactory/beforeNestedClass.java
new file mode 100644
index 000000000000..9d424ddfc084
--- /dev/null
+++ b/java/java-tests/testData/refactoring/replaceConstructorWithFactory/beforeNestedClass.java
@@ -0,0 +1,16 @@
+class OuterClass {
+    static InnerClass createInnerClass(int _i) {
+      return new InnerClass(_i);
+    }
+  
+    static class InnerClass {
+        int i;
+        InnerClass<caret>(int _i) {
+            i = _i;
+        }
+    }
+    InnerClass myInner = new InnerClass(27);
+    static int method() {
+        InnerClass inner = new InnerClass(15);
+    }
+}
\ No newline at end of file
diff --git a/java/java-tests/testData/refactoring/replaceConstructorWithFactory/beforeNestedClass2.java b/java/java-tests/testData/refactoring/replaceConstructorWithFactory/beforeNestedClass2.java
new file mode 100644
index 000000000000..9fddc7896fb5
--- /dev/null
+++ b/java/java-tests/testData/refactoring/replaceConstructorWithFactory/beforeNestedClass2.java
@@ -0,0 +1,12 @@
+class OuterClass {
+    static class InnerClass {
+        int i;
+        InnerClass<caret>(int _i) {
+            i = _i;
+        }
+    }
+    InnerClass myInner = new InnerClass(27);
+    static int method() {
+        InnerClass inner = new InnerClass(15);
+    }
+}
\ No newline at end of file
diff --git a/java/java-tests/testSrc/com/intellij/java/refactoring/ReplaceConstructorWithFactoryTest.java b/java/java-tests/testSrc/com/intellij/java/refactoring/ReplaceConstructorWithFactoryTest.java
index ad64f673cab9..c9bae44b45fe 100644
--- a/java/java-tests/testSrc/com/intellij/java/refactoring/ReplaceConstructorWithFactoryTest.java
+++ b/java/java-tests/testSrc/com/intellij/java/refactoring/ReplaceConstructorWithFactoryTest.java
@@ -28,7 +28,11 @@ public class ReplaceConstructorWithFactoryTest extends LightRefactoringTestCase
   public void testDefaultConstructor() { runTest("03", null); }
   public void testDefaultConstructorWithTypeParams() { runTest("TypeParams", null); }
 
-  public void testInnerClass() { runTest("04", "OuterClass"); }
+  public void testInnerClass() { runTest("04", null); }
+  
+  public void testNestedClass() { runTest("NestedClass", "OuterClass"); }
+  
+  public void testNestedClass2() { runTest("NestedClass2", "InnerClass"); }
 
   public void testSubclassVisibility() { runTest("05", null); }