diff --git a/compiler/src/dotty/tools/dotc/core/TypeComparer.scala b/compiler/src/dotty/tools/dotc/core/TypeComparer.scala
index af495ee1cacc..582c41a2a950 100644
--- a/compiler/src/dotty/tools/dotc/core/TypeComparer.scala
+++ b/compiler/src/dotty/tools/dotc/core/TypeComparer.scala
@@ -579,10 +579,15 @@ class TypeComparer(initctx: Context) extends ConstraintHandling[AbsentContext] w
             val saved = comparedTypeLambdas
             comparedTypeLambdas += tp1
             comparedTypeLambdas += tp2
-            try
-              variancesConform(tp1.typeParams, tp2.typeParams) &&
-              boundsOK &&
-              isSubType(tp1.resType, tp2.resType.subst(tp2, tp1))
+            val variancesOK =
+              variancesConform(tp1.typeParams, tp2.typeParams)
+              || { // if tp1 is of the form [X] =>> C[X] where `C` is co- or contra-variant
+                   // assume the variance of `C` for `tp1` instead. Fixes #7648.
+                tp1 match
+                  case EtaExpansion(tycon1) => variancesConform(tycon1.typeParams, tp2.typeParams)
+                  case _ => false
+              }
+            try variancesOK && boundsOK && isSubType(tp1.resType, tp2.resType.subst(tp2, tp1))
             finally comparedTypeLambdas = saved
           case _ =>
             val tparams1 = tp1.typeParams
diff --git a/tests/neg/tcpoly_typealias.scala b/tests/neg/tcpoly_typealias.scala
index 6c7f80cc0bdf..02861199a40a 100644
--- a/tests/neg/tcpoly_typealias.scala
+++ b/tests/neg/tcpoly_typealias.scala
@@ -34,7 +34,7 @@ trait BOk4 extends A3 {
  // does type alias signature (not considering RHS) correspond to abstract type member in super class
  // does RHS correspond to the type alias sig
 trait BInv extends A{
-  type m[x] = FooCov[x] // error: invariant x in alias def
+  type m[x] = FooCov[x] // was an error: invariant x in alias def, now ok, since `FooCov` is covariant
 }
 
 trait BCon extends A{
diff --git a/tests/pos/i7648.scala b/tests/pos/i7648.scala
new file mode 100644
index 000000000000..13dd1376c9e5
--- /dev/null
+++ b/tests/pos/i7648.scala
@@ -0,0 +1,18 @@
+package i7648
+
+class IO[+A]
+
+trait Functor[F[_]]
+trait Monad[F[_]] extends Functor[F]
+
+class Stream[+F[_], +A] {
+  def take[F1[x] >: F[x]](n: Int)(implicit f: Functor[F1]): Stream[F1, A] = {
+    this
+  }
+}
+
+object Test with
+
+  implicit val ioMonad: Monad[IO] = null
+
+  val x = new Stream[IO, Int].take[IO](10)