diff --git a/java/java-psi-api/src/com/intellij/psi/util/TypesDistinctProver.java b/java/java-psi-api/src/com/intellij/psi/util/TypesDistinctProver.java
index e147b4060848..9ff34755e90f 100644
--- a/java/java-psi-api/src/com/intellij/psi/util/TypesDistinctProver.java
+++ b/java/java-psi-api/src/com/intellij/psi/util/TypesDistinctProver.java
@@ -38,12 +38,12 @@ public class TypesDistinctProver {
   protected static boolean provablyDistinct(PsiType type1, PsiType type2, int level) {
     if (type1 instanceof PsiWildcardType) {
       if (type2 instanceof PsiWildcardType) {
-        return provablyDistinct((PsiWildcardType)type1, (PsiWildcardType)type2, true);
+        return provablyDistinct((PsiWildcardType)type1, (PsiWildcardType)type2, true, level);
       }
 
       if (level > 1) return true;
       if (type2 instanceof PsiCapturedWildcardType) {
-        return provablyDistinct((PsiWildcardType)type1, ((PsiCapturedWildcardType)type2).getWildcard(), false);
+        return provablyDistinct((PsiWildcardType)type1, ((PsiCapturedWildcardType)type2).getWildcard(), false, level);
       }
 
       if (type2 instanceof PsiClassType) {
@@ -150,7 +150,7 @@ public class TypesDistinctProver {
     return true;
   }
 
-  public static boolean provablyDistinct(PsiWildcardType type1, PsiWildcardType type2, boolean rejectInconsistentRaw) {
+  public static boolean provablyDistinct(PsiWildcardType type1, PsiWildcardType type2, boolean rejectInconsistentRaw, int level) {
     if (type1.isSuper() && type2.isSuper()) return false;
     if (type1.isExtends() && type2.isExtends()) {
       final PsiType extendsBound1 = type1.getExtendsBound();
@@ -168,7 +168,8 @@ public class TypesDistinctProver {
       }
       return provablyDistinct(extendsBound1, extendsBound2, 1);
     }
-    if (type2.isExtends()) return provablyDistinct(type2, type1, rejectInconsistentRaw);
+    if (type2.isExtends()) return provablyDistinct(type2, type1, rejectInconsistentRaw, level);
+    if (type1.isExtends() && !type2.isBounded() && level > 1) return PsiUtil.resolveClassInType(type1.getExtendsBound()) instanceof PsiTypeParameter;
     if (type1.isExtends() && type2.isSuper()) {
       final PsiType extendsBound = type1.getExtendsBound();
       final PsiType superBound = type2.getSuperBound();
diff --git a/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/IDEA120563.java b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/IDEA120563.java
new file mode 100644
index 000000000000..fb60ea55a5d5
--- /dev/null
+++ b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/IDEA120563.java
@@ -0,0 +1,33 @@
+
+import java.util.Set;
+
+public class WrongGenerics {
+
+  @SuppressWarnings("unchecked")
+  <T> Set<Foo<? extends T>> foo(Set<Foo<?>> foo) {
+    return <error descr="Inconvertible types; cannot cast 'java.util.Set<Foo<?>>' to 'java.util.Set<Foo<? extends T>>'">(Set<Foo<?  extends T>>)foo</error>;
+  }
+
+  @SuppressWarnings("unchecked")
+  <T> Set<Foo<? extends T>> bar(Set<Foo<? extends T>> foo) {
+    return <error descr="Inconvertible types; cannot cast 'java.util.Set<Foo<? extends T>>' to 'java.util.Set<Foo<?>>'">(Set<Foo<?>>) foo</error>;
+  }
+
+  @SuppressWarnings("unchecked")
+  <T> Foo<? extends T> bothSucceed(Foo<?> foo) {
+    return (Foo<? extends  T>) foo;
+  }
+
+  @SuppressWarnings("unchecked")
+  <T> Foo<Foo<? extends T>> bothFail(Foo<Foo<?>> foo) {
+    return <error descr="Inconvertible types; cannot cast 'Foo<Foo<?>>' to 'Foo<Foo<? extends T>>'">(Foo<Foo<? extends T>>) foo</error>;
+  }
+
+  @SuppressWarnings("unchecked")
+  <T> Set<Foo<? extends T>> onlyIntelliJSucceeds(Set<Foo<?>> foo) {
+    return <error descr="Inconvertible types; cannot cast 'java.util.Set<Foo<?>>' to 'java.util.Set<Foo<? extends T>>'">(Set<Foo<? extends T>>) foo</error>;
+  }
+}
+
+class Foo<T> {
+}
diff --git a/java/java-tests/testSrc/com/intellij/codeInsight/daemon/GenericsHighlightingTest.java b/java/java-tests/testSrc/com/intellij/codeInsight/daemon/GenericsHighlightingTest.java
index 2ed84c6ab14d..9b8861a5a01c 100644
--- a/java/java-tests/testSrc/com/intellij/codeInsight/daemon/GenericsHighlightingTest.java
+++ b/java/java-tests/testSrc/com/intellij/codeInsight/daemon/GenericsHighlightingTest.java
@@ -337,6 +337,7 @@ public class GenericsHighlightingTest extends LightDaemonAnalyzerTestCase {
   public void testIDEA119546() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false); }
   public void testIDEA118527() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false); }
   public void testIDEA120153() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false); }
+  public void testIDEA120563() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false); }
 
   public void testSuperWildcardWithBoundPromotion() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false);}