diff --git a/src/dotty/tools/dotc/typer/TypeAssigner.scala b/src/dotty/tools/dotc/typer/TypeAssigner.scala
index ba8d44110b10..7225ede143ae 100644
--- a/src/dotty/tools/dotc/typer/TypeAssigner.scala
+++ b/src/dotty/tools/dotc/typer/TypeAssigner.scala
@@ -31,35 +31,40 @@ trait TypeAssigner {
   /** An upper approximation of the given type `tp` that does not refer to any symbol in `symsToAvoid`.
    *  Approximation steps are:
    *
-   *   - follow aliases if the original refers to a forbidden symbol
+   *   - follow aliases and upper bounds if the original refers to a forbidden symbol
    *   - widen termrefs that refer to a forbidden symbol
    *   - replace ClassInfos of forbidden classes by the intersection of their parents, refined by all
    *     non-private fields, methods, and type members.
+   *   - if the prefix of a class refers to a forbidden symbol, first try to replace the prefix,
+   *     if this is not possible, replace the ClassInfo as above.
    *   - drop refinements referring to a forbidden symbol.
    */
   def avoid(tp: Type, symsToAvoid: => List[Symbol])(implicit ctx: Context): Type = {
     val widenMap = new TypeMap {
       lazy val forbidden = symsToAvoid.toSet
-      def toAvoid(tp: Type): Boolean = tp match {
-        case tp: TermRef =>
-          val sym = tp.symbol
-          sym.exists && (
-               sym.owner.isTerm && (forbidden contains sym)
-            || !(sym.owner is Package) && toAvoid(tp.prefix)
-            )
-        case tp: TypeRef =>
-          forbidden contains tp.symbol
-        case _ =>
-          false
-      }
-      def apply(tp: Type) = tp match {
+      def toAvoid(tp: Type): Boolean =
+        // TODO: measure the cost of using `existsPart`, and if necessary replace it
+        // by a `TypeAccumulator` where we have set `stopAtStatic = true`.
+        tp existsPart {
+          case tp: NamedType =>
+            forbidden contains tp.symbol
+          case _ =>
+            false
+        }
+      def apply(tp: Type): Type = tp match {
         case tp: TermRef if toAvoid(tp) && variance > 0 =>
           apply(tp.info.widenExpr)
-        case tp: TypeRef if (forbidden contains tp.symbol) || toAvoid(tp.prefix) =>
+        case tp: TypeRef if toAvoid(tp) =>
           tp.info match {
             case TypeAlias(ref) =>
               apply(ref)
             case info: ClassInfo if variance > 0 =>
+              if (!(forbidden contains tp.symbol)) {
+                val prefix = apply(tp.prefix)
+                val tp1 = tp.derivedSelect(prefix)
+                if (tp1.typeSymbol.exists)
+                  return tp1
+              }
               val parentType = info.instantiatedParents.reduceLeft(ctx.typeComparer.andType(_, _))
               def addRefinement(parent: Type, decl: Symbol) = {
                 val inherited =
@@ -82,13 +87,28 @@ trait TypeAssigner {
             case _ =>
               mapOver(tp)
           }
-        case tp: RefinedType =>
-          val tp1 @ RefinedType(parent1, _) = mapOver(tp)
-          if (tp1.refinedInfo.existsPart(toAvoid) && variance > 0) {
-            typr.println(s"dropping refinement from $tp1")
-            parent1
+        case tp @ RefinedType(parent, name) if variance > 0 =>
+          // The naive approach here would be to first approximate the parent,
+          // but if the base type of the approximated parent is different from
+          // the current base type, then the current refinement won't be valid
+          // if it's a type parameter refinement.
+          // Therefore we first approximate the base type, then use `baseArgInfos`
+          // to get correct refinements for the approximated base type, then
+          // recursively approximate the resulting type.
+          val base = tp.unrefine
+          if (toAvoid(base)) {
+            val base1 = apply(base)
+            apply(base1.appliedTo(tp.baseArgInfos(base1.typeSymbol)))
+          } else {
+            val parent1 = apply(tp.parent)
+            val refinedInfo1 = apply(tp.refinedInfo)
+            if (toAvoid(refinedInfo1)) {
+              typr.println(s"dropping refinement from $tp")
+              parent1
+            } else {
+              tp.derivedRefinedType(parent1, name, refinedInfo1)
+            }
           }
-          else tp1
         case tp: TypeVar if ctx.typerState.constraint.contains(tp) =>
           val lo = ctx.typerState.constraint.fullLowerBound(tp.origin)
           val lo1 = avoid(lo, symsToAvoid)
diff --git a/tests/pos/escapingRefs.scala b/tests/pos/escapingRefs.scala
new file mode 100644
index 000000000000..1b1deb8dec75
--- /dev/null
+++ b/tests/pos/escapingRefs.scala
@@ -0,0 +1,42 @@
+class Outer {
+  class Inner {
+    class Inner2
+  }
+}
+
+class HasA { type A }
+
+class Foo[A]
+
+object Test {
+  def test = {
+    val a: Outer#Inner = {
+      val o = new Outer
+      new o.Inner
+    }
+
+    val b: Outer#Inner#Inner2 = {
+      val o = new Outer
+      val i = new o.Inner
+      new i.Inner2
+    }
+
+    val c: HasA { type A = Int } = {
+      val h = new HasA {
+        type A = Int
+      }
+      val x: HasA { type A = h.A } = h
+      x
+    }
+
+    val d: Foo[Int] = {
+      class Bar[B] extends Foo[B]
+      new Bar[Int]
+    }
+
+    val e: Foo[_] = {
+      class Bar[B] extends Foo[B]
+      new Bar[Int]: Bar[_ <: Int]
+    }
+  }
+}