diff --git a/src/typing.ml b/src/typing.ml
index be56ac84178..9f82a3cda97 100644
--- a/src/typing.ml
+++ b/src/typing.ml
@@ -363,7 +363,8 @@ and infer_exp'' env exp : T.typ =
     | Some T.Pre ->
       error env id.at "cannot infer type of forward variable %s" id.it;
     | Some t -> t
-    | None -> error env id.at "unbound variable %s" id.it
+    | None ->
+      error env id.at "unbound variable %s" id.it
     )
   | LitE lit ->
     T.Prim (infer_lit env lit exp.at)
@@ -1120,7 +1121,12 @@ and gather_dec_typdecs env scope dec : scope =
     let c = Con.fresh id.it pre_k in
     let te' = T.Env.add id.it c scope.typ_env in
     let ce' = T.ConSet.disjoint_add c scope.con_env in
-    {scope with typ_env = te'; con_env = ce'}
+    let ve' =  match dec.it with
+      | ClassD _ ->
+        T.Env.add id.it T.Pre scope.val_env
+      | _ -> scope.val_env
+    in
+    { typ_env = te'; con_env = ce'; val_env = ve' }
 
 
 (* Pass 2 and 3: infer type definitions *)
diff --git a/test/bugs/freeclass1.as b/test/bugs/freeclass1.as
new file mode 100644
index 00000000000..c69527dac15
--- /dev/null
+++ b/test/bugs/freeclass1.as
@@ -0,0 +1,11 @@
+
+class Foo(f1:Int -> Int, f2:Int -> Int) { };
+
+class Bar () {
+
+  private g(n:Int) : Int = n + 1;
+
+  let Bar = Foo(g, g)  ;
+
+};
+
diff --git a/test/fail/nested-class-rec-fail.as b/test/fail/nested-class-rec-fail.as
new file mode 100644
index 00000000000..5dbcfb85677
--- /dev/null
+++ b/test/fail/nested-class-rec-fail.as
@@ -0,0 +1,10 @@
+
+class Foo(f1:Int -> Int, f2:Int -> Int) { };
+
+class Bar () {
+
+  private g(n:Int) : Int = n + 1;
+
+  let Bar = Foo(g, g) /*: Foo */; // annotation needed to typecheck constructor call
+
+};
diff --git a/test/fail/ok/nested-class-rec-fail.tc.ok b/test/fail/ok/nested-class-rec-fail.tc.ok
new file mode 100644
index 00000000000..6e4d5470dd3
--- /dev/null
+++ b/test/fail/ok/nested-class-rec-fail.tc.ok
@@ -0,0 +1 @@
+nested-class-rec-fail.as:8.13-8.16: type error, cannot infer type of forward variable Foo
diff --git a/test/run/nested-class-rec.as b/test/run/nested-class-rec.as
new file mode 100644
index 00000000000..4ab62442d0c
--- /dev/null
+++ b/test/run/nested-class-rec.as
@@ -0,0 +1,10 @@
+
+class Foo(f1:Int -> Int, f2:Int -> Int) { };
+
+class Bar () {
+
+  private g(n:Int) : Int = n + 1;
+
+  let Bar = Foo(g, g) : Foo; // annotation needed to typecheck constructor call
+
+};