diff --git a/java/java-psi-api/src/com/intellij/psi/util/TypeConversionUtil.java b/java/java-psi-api/src/com/intellij/psi/util/TypeConversionUtil.java
index 2fb00435eb77..be3c641c08c0 100644
--- a/java/java-psi-api/src/com/intellij/psi/util/TypeConversionUtil.java
+++ b/java/java-psi-api/src/com/intellij/psi/util/TypeConversionUtil.java
@@ -353,13 +353,16 @@ public final class TypeConversionUtil {
    * <p>See JEP-397 for more details.</p>
    */
   public static boolean canConvertSealedTo(@NotNull PsiClass sealedClass, @NotNull PsiClass psiClass) {
-    return canConvertSealedTo(sealedClass, psiClass, new HashSet<>());
+    return canConvertSealedTo(sealedClass, psiClass, new HashSet<>(), true);
   }
   
-  private static boolean canConvertSealedTo(@NotNull PsiClass sealedClass, @NotNull PsiClass psiClass, @NotNull Set<PsiClass> visited) {
+  private static boolean canConvertSealedTo(@NotNull PsiClass sealedClass,
+                                            @NotNull PsiClass psiClass,
+                                            @NotNull Set<PsiClass> visited,
+                                            boolean isTopLevel) {
     if (visited.contains(sealedClass)) return true;
     visited.add(sealedClass);
-    if (!sealedClass.isInterface() && !psiClass.isInterface()) return true;
+    if (isTopLevel && !sealedClass.isInterface() && !psiClass.isInterface()) return true;
     PsiReferenceList permitsList = sealedClass.getPermitsList();
     List<PsiClass> sealedSubClasses = new SmartList<>();
     boolean hasClassInheritors;
@@ -372,7 +375,7 @@ public final class TypeConversionUtil {
         .map(t -> t.resolve())
         .anyMatch(subClass -> subClassExtendsClass(subClass, psiClass, sealedSubClasses));
     }
-    return hasClassInheritors || sealedSubClasses.stream().anyMatch(subClass -> canConvertSealedTo(subClass, psiClass, visited));
+    return hasClassInheritors || sealedSubClasses.stream().anyMatch(subClass -> canConvertSealedTo(subClass, psiClass, visited, false));
   }
 
   private static @NotNull Set<PsiClass> findDirectSubClassesInFile(@NotNull PsiClass sealedClass) {
diff --git a/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/advHighlightingSealedTypes/SealedClassCast.java b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/advHighlightingSealedTypes/SealedClassCast.java
index 5c7bda5f554c..5e1e327ee862 100644
--- a/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/advHighlightingSealedTypes/SealedClassCast.java
+++ b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/advHighlightingSealedTypes/SealedClassCast.java
@@ -37,6 +37,12 @@ interface Foo {
 
   interface I1 {}
   
+  sealed interface GrandParent permits Parent {}
+  static sealed class Parent implements GrandParent permits Child {}
+  static final class Child extends Parent {}
+  static class RandomClass {} 
+  
+  
   static void testA(A a) {
     if (<error descr="Inconvertible types; cannot cast 'Foo.A' to 'Foo'">a instanceof Foo</error>)
       System.out.println("It's a Foo");
@@ -85,4 +91,10 @@ interface Foo {
   static void testRecursive1(Recursive1 r1) {
     if (r1 instanceof I1) {}
   }
+  
+  static void testDeepSealedHierarchy(GrandParent gp) {
+    if (<error descr="Inconvertible types; cannot cast 'Foo.GrandParent' to 'Foo.RandomClass'">gp instanceof RandomClass</error>) {
+      System.out.println("It's a RandomClass");
+    }
+  }
 }
\ No newline at end of file