diff --git a/src/statement.js b/src/statement.js
index 5950608f6..7ac77f1b3 100644
--- a/src/statement.js
+++ b/src/statement.js
@@ -498,7 +498,7 @@ pp.parseFunction = function(node, isStatement, allowExpressionBody, isAsync) {
   if (isStatement) {
     node.id = isStatement === "nullableID" && this.type !== tt.name ? null : this.parseIdent()
     if (node.id) {
-      this.checkLVal(node.id, this.inModule ? "let" : "var")
+      this.checkLVal(node.id, this.inModule && !this.inFunction ? "let" : "var")
     }
   }
 
diff --git a/test/tests-harmony.js b/test/tests-harmony.js
index 5136ff75b..0040e0a51 100644
--- a/test/tests-harmony.js
+++ b/test/tests-harmony.js
@@ -16239,3 +16239,5 @@ test('for ([...foo, bar].baz in qux);', {
 }, {ecmaVersion: 6})
 
 testFail("var f;\nfunction f() {}", "Identifier 'f' has already been declared (2:9)", {ecmaVersion: 6, sourceType: "module"});
+
+test("function f() { var x; function x() {} }", {}, {ecmaVersion: 6, sourceType: "module"})