diff --git a/tsc/internal/checker/checker.go b/tsc/internal/checker/checker.go
index fb3c33c01b814..50dfdf1f352b0 100644
--- a/tsc/internal/checker/checker.go
+++ b/tsc/internal/checker/checker.go
@@ -10285,7 +10285,9 @@ func (c *Checker) contextuallyCheckFunctionExpressionOrObjectLiteralMethod(node
 				}
 			}
 			if contextualSignature != nil && c.getReturnTypeFromAnnotation(node) == nil && signature.resolvedReturnType == nil {
-				returnType := c.getReturnTypeFromBody(node, checkMode)
+				// resolvedReturnType is cached indefinitely, so the return type here has to be computed without CheckModeSkipContextSensitive;
+				// otherwise anyFunctionType could leak as part of the computed (and cached) return type.
+				returnType := c.getReturnTypeFromBody(node, checkMode&^CheckModeSkipContextSensitive)
 				if signature.resolvedReturnType == nil {
 					signature.resolvedReturnType = returnType
 				}
diff --git a/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.errors.txt b/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.errors.txt
new file mode 100644
index 0000000000000..d9617585b65f4
--- /dev/null
+++ b/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.errors.txt
@@ -0,0 +1,115 @@
+contextualTypingGenericFunction2.ts(10,3): error TS2322: Type '<T>(params: T) => (a: boolean, b: unknown) => 0 | 1' is not assignable to type '(params: T) => (context: number, params: T) => number'.
+  Type '(a: boolean, b: unknown) => 0 | 1' is not assignable to type '(context: number, params: T) => number'.
+    Types of parameters 'a' and 'context' are incompatible.
+      Type 'number' is not assignable to type 'boolean'.
+contextualTypingGenericFunction2.ts(18,3): error TS2322: Type '<T>(params: T) => (a: number, b: unknown) => boolean' is not assignable to type '(params: T) => (context: number, params: T) => number'.
+  Type '(a: number, b: unknown) => boolean' is not assignable to type '(context: number, params: T) => number'.
+    Type 'boolean' is not assignable to type 'number'.
+contextualTypingGenericFunction2.ts(26,3): error TS2322: Type '<T>(params: T) => (a: number, b: unknown) => boolean' is not assignable to type '(params: T) => (context: number, params: T) => number'.
+  Type '(a: number, b: unknown) => boolean' is not assignable to type '(context: number, params: T) => number'.
+    Type 'boolean' is not assignable to type 'number'.
+contextualTypingGenericFunction2.ts(39,3): error TS2322: Type '<T>(params: T) => (a: boolean, b: unknown) => 0 | 1' is not assignable to type '(params: unknown) => (context: number, params: unknown) => number'.
+  Type '(a: boolean, b: unknown) => 0 | 1' is not assignable to type '(context: number, params: unknown) => number'.
+    Types of parameters 'a' and 'context' are incompatible.
+      Type 'number' is not assignable to type 'boolean'.
+contextualTypingGenericFunction2.ts(47,3): error TS2322: Type '<T>(params: T) => (a: number, b: unknown) => boolean' is not assignable to type '(params: unknown) => (context: number, params: unknown) => number'.
+  Type '(a: number, b: unknown) => boolean' is not assignable to type '(context: number, params: unknown) => number'.
+    Type 'boolean' is not assignable to type 'number'.
+contextualTypingGenericFunction2.ts(55,3): error TS2322: Type '<T>(params: T) => (a: number, b: unknown) => boolean' is not assignable to type '(params: unknown) => (context: number, params: unknown) => number'.
+  Type '(a: number, b: unknown) => boolean' is not assignable to type '(context: number, params: unknown) => number'.
+    Type 'boolean' is not assignable to type 'number'.
+
+
+==== contextualTypingGenericFunction2.ts (6 errors) ====
+    // https://github.com/microsoft/TypeScript/issues/61979
+    
+    declare function fn<P>(config: {
+      callback: (params: P) => (context: number, params: P) => number;
+      unrelated?: (arg: string) => void;
+    }): (params: P) => number;
+    
+    // should error
+    export const result1 = fn({
+      callback: <T,>(params: T) => {
+      ~~~~~~~~
+!!! error TS2322: Type '<T>(params: T) => (a: boolean, b: unknown) => 0 | 1' is not assignable to type '(params: T) => (context: number, params: T) => number'.
+!!! error TS2322:   Type '(a: boolean, b: unknown) => 0 | 1' is not assignable to type '(context: number, params: T) => number'.
+!!! error TS2322:     Types of parameters 'a' and 'context' are incompatible.
+!!! error TS2322:       Type 'number' is not assignable to type 'boolean'.
+!!! related TS6500 contextualTypingGenericFunction2.ts:4:3: The expected type comes from property 'callback' which is declared here on type '{ callback: (params: T) => (context: number, params: T) => number; unrelated?: ((arg: string) => void) | undefined; }'
+        return (a: boolean, b) => (a ? 1 : 0);
+      },
+      unrelated: (_) => {},
+    });
+    
+    // should error
+    export const result2 = fn({
+      callback: <T,>(params: T) => {
+      ~~~~~~~~
+!!! error TS2322: Type '<T>(params: T) => (a: number, b: unknown) => boolean' is not assignable to type '(params: T) => (context: number, params: T) => number'.
+!!! error TS2322:   Type '(a: number, b: unknown) => boolean' is not assignable to type '(context: number, params: T) => number'.
+!!! error TS2322:     Type 'boolean' is not assignable to type 'number'.
+!!! related TS6500 contextualTypingGenericFunction2.ts:4:3: The expected type comes from property 'callback' which is declared here on type '{ callback: (params: T) => (context: number, params: T) => number; unrelated?: ((arg: string) => void) | undefined; }'
+        return (a, b): boolean => true;
+      },
+      unrelated: (_) => {},
+    });
+    
+    // should error
+    export const result3 = fn({
+      callback: <T,>(params: T) => {
+      ~~~~~~~~
+!!! error TS2322: Type '<T>(params: T) => (a: number, b: unknown) => boolean' is not assignable to type '(params: T) => (context: number, params: T) => number'.
+!!! error TS2322:   Type '(a: number, b: unknown) => boolean' is not assignable to type '(context: number, params: T) => number'.
+!!! error TS2322:     Type 'boolean' is not assignable to type 'number'.
+!!! related TS6500 contextualTypingGenericFunction2.ts:4:3: The expected type comes from property 'callback' which is declared here on type '{ callback: (params: T) => (context: number, params: T) => number; unrelated?: ((arg: string) => void) | undefined; }'
+        return (a, b) => true;
+      },
+      unrelated: (_) => {},
+    });
+    
+    declare function fn2<P>(config: {
+      callback: (params: P) => (context: number, params: P) => number;
+      unrelated?: (arg: string) => void;
+    }): any;
+    
+    // should error
+    export const result4 = fn2({
+      callback: <T,>(params: T) => {
+      ~~~~~~~~
+!!! error TS2322: Type '<T>(params: T) => (a: boolean, b: unknown) => 0 | 1' is not assignable to type '(params: unknown) => (context: number, params: unknown) => number'.
+!!! error TS2322:   Type '(a: boolean, b: unknown) => 0 | 1' is not assignable to type '(context: number, params: unknown) => number'.
+!!! error TS2322:     Types of parameters 'a' and 'context' are incompatible.
+!!! error TS2322:       Type 'number' is not assignable to type 'boolean'.
+!!! related TS6500 contextualTypingGenericFunction2.ts:33:3: The expected type comes from property 'callback' which is declared here on type '{ callback: (params: unknown) => (context: number, params: unknown) => number; unrelated?: ((arg: string) => void) | undefined; }'
+        return (a: boolean, b) => (a ? 1 : 0);
+      },
+      unrelated: (_) => {},
+    });
+    
+    // should error
+    export const result5 = fn2({
+      callback: <T,>(params: T) => {
+      ~~~~~~~~
+!!! error TS2322: Type '<T>(params: T) => (a: number, b: unknown) => boolean' is not assignable to type '(params: unknown) => (context: number, params: unknown) => number'.
+!!! error TS2322:   Type '(a: number, b: unknown) => boolean' is not assignable to type '(context: number, params: unknown) => number'.
+!!! error TS2322:     Type 'boolean' is not assignable to type 'number'.
+!!! related TS6500 contextualTypingGenericFunction2.ts:33:3: The expected type comes from property 'callback' which is declared here on type '{ callback: (params: unknown) => (context: number, params: unknown) => number; unrelated?: ((arg: string) => void) | undefined; }'
+        return (a, b): boolean => true;
+      },
+      unrelated: (_) => {},
+    });
+    
+    // should error
+    export const result6 = fn2({
+      callback: <T,>(params: T) => {
+      ~~~~~~~~
+!!! error TS2322: Type '<T>(params: T) => (a: number, b: unknown) => boolean' is not assignable to type '(params: unknown) => (context: number, params: unknown) => number'.
+!!! error TS2322:   Type '(a: number, b: unknown) => boolean' is not assignable to type '(context: number, params: unknown) => number'.
+!!! error TS2322:     Type 'boolean' is not assignable to type 'number'.
+!!! related TS6500 contextualTypingGenericFunction2.ts:33:3: The expected type comes from property 'callback' which is declared here on type '{ callback: (params: unknown) => (context: number, params: unknown) => number; unrelated?: ((arg: string) => void) | undefined; }'
+        return (a, b) => true;
+      },
+      unrelated: (_) => {},
+    });
+    
\ No newline at end of file
diff --git a/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.symbols b/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.symbols
new file mode 100644
index 0000000000000..e319edad2ba7f
--- /dev/null
+++ b/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.symbols
@@ -0,0 +1,179 @@
+//// [tests/cases/compiler/contextualTypingGenericFunction2.ts] ////
+
+=== contextualTypingGenericFunction2.ts ===
+// https://github.com/microsoft/TypeScript/issues/61979
+
+declare function fn<P>(config: {
+>fn : Symbol(fn, Decl(contextualTypingGenericFunction2.ts, 0, 0))
+>P : Symbol(P, Decl(contextualTypingGenericFunction2.ts, 2, 20))
+>config : Symbol(config, Decl(contextualTypingGenericFunction2.ts, 2, 23))
+
+  callback: (params: P) => (context: number, params: P) => number;
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 2, 32))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 3, 13))
+>P : Symbol(P, Decl(contextualTypingGenericFunction2.ts, 2, 20))
+>context : Symbol(context, Decl(contextualTypingGenericFunction2.ts, 3, 28))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 3, 44))
+>P : Symbol(P, Decl(contextualTypingGenericFunction2.ts, 2, 20))
+
+  unrelated?: (arg: string) => void;
+>unrelated : Symbol(unrelated, Decl(contextualTypingGenericFunction2.ts, 3, 66))
+>arg : Symbol(arg, Decl(contextualTypingGenericFunction2.ts, 4, 15))
+
+}): (params: P) => number;
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 5, 5))
+>P : Symbol(P, Decl(contextualTypingGenericFunction2.ts, 2, 20))
+
+// should error
+export const result1 = fn({
+>result1 : Symbol(result1, Decl(contextualTypingGenericFunction2.ts, 8, 12))
+>fn : Symbol(fn, Decl(contextualTypingGenericFunction2.ts, 0, 0))
+
+  callback: <T,>(params: T) => {
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 8, 27))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 9, 13))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 9, 17))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 9, 13))
+
+    return (a: boolean, b) => (a ? 1 : 0);
+>a : Symbol(a, Decl(contextualTypingGenericFunction2.ts, 10, 12))
+>b : Symbol(b, Decl(contextualTypingGenericFunction2.ts, 10, 23))
+>a : Symbol(a, Decl(contextualTypingGenericFunction2.ts, 10, 12))
+
+  },
+  unrelated: (_) => {},
+>unrelated : Symbol(unrelated, Decl(contextualTypingGenericFunction2.ts, 11, 4))
+>_ : Symbol(_, Decl(contextualTypingGenericFunction2.ts, 12, 14))
+
+});
+
+// should error
+export const result2 = fn({
+>result2 : Symbol(result2, Decl(contextualTypingGenericFunction2.ts, 16, 12))
+>fn : Symbol(fn, Decl(contextualTypingGenericFunction2.ts, 0, 0))
+
+  callback: <T,>(params: T) => {
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 16, 27))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 17, 13))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 17, 17))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 17, 13))
+
+    return (a, b): boolean => true;
+>a : Symbol(a, Decl(contextualTypingGenericFunction2.ts, 18, 12))
+>b : Symbol(b, Decl(contextualTypingGenericFunction2.ts, 18, 14))
+
+  },
+  unrelated: (_) => {},
+>unrelated : Symbol(unrelated, Decl(contextualTypingGenericFunction2.ts, 19, 4))
+>_ : Symbol(_, Decl(contextualTypingGenericFunction2.ts, 20, 14))
+
+});
+
+// should error
+export const result3 = fn({
+>result3 : Symbol(result3, Decl(contextualTypingGenericFunction2.ts, 24, 12))
+>fn : Symbol(fn, Decl(contextualTypingGenericFunction2.ts, 0, 0))
+
+  callback: <T,>(params: T) => {
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 24, 27))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 25, 13))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 25, 17))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 25, 13))
+
+    return (a, b) => true;
+>a : Symbol(a, Decl(contextualTypingGenericFunction2.ts, 26, 12))
+>b : Symbol(b, Decl(contextualTypingGenericFunction2.ts, 26, 14))
+
+  },
+  unrelated: (_) => {},
+>unrelated : Symbol(unrelated, Decl(contextualTypingGenericFunction2.ts, 27, 4))
+>_ : Symbol(_, Decl(contextualTypingGenericFunction2.ts, 28, 14))
+
+});
+
+declare function fn2<P>(config: {
+>fn2 : Symbol(fn2, Decl(contextualTypingGenericFunction2.ts, 29, 3))
+>P : Symbol(P, Decl(contextualTypingGenericFunction2.ts, 31, 21))
+>config : Symbol(config, Decl(contextualTypingGenericFunction2.ts, 31, 24))
+
+  callback: (params: P) => (context: number, params: P) => number;
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 31, 33))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 32, 13))
+>P : Symbol(P, Decl(contextualTypingGenericFunction2.ts, 31, 21))
+>context : Symbol(context, Decl(contextualTypingGenericFunction2.ts, 32, 28))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 32, 44))
+>P : Symbol(P, Decl(contextualTypingGenericFunction2.ts, 31, 21))
+
+  unrelated?: (arg: string) => void;
+>unrelated : Symbol(unrelated, Decl(contextualTypingGenericFunction2.ts, 32, 66))
+>arg : Symbol(arg, Decl(contextualTypingGenericFunction2.ts, 33, 15))
+
+}): any;
+
+// should error
+export const result4 = fn2({
+>result4 : Symbol(result4, Decl(contextualTypingGenericFunction2.ts, 37, 12))
+>fn2 : Symbol(fn2, Decl(contextualTypingGenericFunction2.ts, 29, 3))
+
+  callback: <T,>(params: T) => {
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 37, 28))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 38, 13))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 38, 17))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 38, 13))
+
+    return (a: boolean, b) => (a ? 1 : 0);
+>a : Symbol(a, Decl(contextualTypingGenericFunction2.ts, 39, 12))
+>b : Symbol(b, Decl(contextualTypingGenericFunction2.ts, 39, 23))
+>a : Symbol(a, Decl(contextualTypingGenericFunction2.ts, 39, 12))
+
+  },
+  unrelated: (_) => {},
+>unrelated : Symbol(unrelated, Decl(contextualTypingGenericFunction2.ts, 40, 4))
+>_ : Symbol(_, Decl(contextualTypingGenericFunction2.ts, 41, 14))
+
+});
+
+// should error
+export const result5 = fn2({
+>result5 : Symbol(result5, Decl(contextualTypingGenericFunction2.ts, 45, 12))
+>fn2 : Symbol(fn2, Decl(contextualTypingGenericFunction2.ts, 29, 3))
+
+  callback: <T,>(params: T) => {
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 45, 28))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 46, 13))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 46, 17))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 46, 13))
+
+    return (a, b): boolean => true;
+>a : Symbol(a, Decl(contextualTypingGenericFunction2.ts, 47, 12))
+>b : Symbol(b, Decl(contextualTypingGenericFunction2.ts, 47, 14))
+
+  },
+  unrelated: (_) => {},
+>unrelated : Symbol(unrelated, Decl(contextualTypingGenericFunction2.ts, 48, 4))
+>_ : Symbol(_, Decl(contextualTypingGenericFunction2.ts, 49, 14))
+
+});
+
+// should error
+export const result6 = fn2({
+>result6 : Symbol(result6, Decl(contextualTypingGenericFunction2.ts, 53, 12))
+>fn2 : Symbol(fn2, Decl(contextualTypingGenericFunction2.ts, 29, 3))
+
+  callback: <T,>(params: T) => {
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 53, 28))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 54, 13))
+>params : Symbol(params, Decl(contextualTypingGenericFunction2.ts, 54, 17))
+>T : Symbol(T, Decl(contextualTypingGenericFunction2.ts, 54, 13))
+
+    return (a, b) => true;
+>a : Symbol(a, Decl(contextualTypingGenericFunction2.ts, 55, 12))
+>b : Symbol(b, Decl(contextualTypingGenericFunction2.ts, 55, 14))
+
+  },
+  unrelated: (_) => {},
+>unrelated : Symbol(unrelated, Decl(contextualTypingGenericFunction2.ts, 56, 4))
+>_ : Symbol(_, Decl(contextualTypingGenericFunction2.ts, 57, 14))
+
+});
+
diff --git a/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.types b/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.types
new file mode 100644
index 0000000000000..1660f8bf544ad
--- /dev/null
+++ b/tsc/testdata/baselines/reference/compiler/contextualTypingGenericFunction2.types
@@ -0,0 +1,202 @@
+//// [tests/cases/compiler/contextualTypingGenericFunction2.ts] ////
+
+=== contextualTypingGenericFunction2.ts ===
+// https://github.com/microsoft/TypeScript/issues/61979
+
+declare function fn<P>(config: {
+>fn : <P>(config: { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }) => (params: P) => number
+>config : { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }
+
+  callback: (params: P) => (context: number, params: P) => number;
+>callback : (params: P) => (context: number, params: P) => number
+>params : P
+>context : number
+>params : P
+
+  unrelated?: (arg: string) => void;
+>unrelated : ((arg: string) => void) | undefined
+>arg : string
+
+}): (params: P) => number;
+>params : P
+
+// should error
+export const result1 = fn({
+>result1 : (params: unknown) => number
+>fn({  callback: <T,>(params: T) => {    return (a: boolean, b) => (a ? 1 : 0);  },  unrelated: (_) => {},}) : (params: unknown) => number
+>fn : <P>(config: { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }) => (params: P) => number
+>{  callback: <T,>(params: T) => {    return (a: boolean, b) => (a ? 1 : 0);  },  unrelated: (_) => {},} : { callback: <T>(params: T) => (a: boolean, b: unknown) => 0 | 1; unrelated: (_: string) => void; }
+
+  callback: <T,>(params: T) => {
+>callback : <T>(params: T) => (a: boolean, b: unknown) => 0 | 1
+><T,>(params: T) => {    return (a: boolean, b) => (a ? 1 : 0);  } : <T>(params: T) => (a: boolean, b: unknown) => 0 | 1
+>params : T
+
+    return (a: boolean, b) => (a ? 1 : 0);
+>(a: boolean, b) => (a ? 1 : 0) : (a: boolean, b: unknown) => 0 | 1
+>a : boolean
+>b : unknown
+>(a ? 1 : 0) : 0 | 1
+>a ? 1 : 0 : 0 | 1
+>a : boolean
+>1 : 1
+>0 : 0
+
+  },
+  unrelated: (_) => {},
+>unrelated : (_: string) => void
+>(_) => {} : (_: string) => void
+>_ : string
+
+});
+
+// should error
+export const result2 = fn({
+>result2 : (params: unknown) => number
+>fn({  callback: <T,>(params: T) => {    return (a, b): boolean => true;  },  unrelated: (_) => {},}) : (params: unknown) => number
+>fn : <P>(config: { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }) => (params: P) => number
+>{  callback: <T,>(params: T) => {    return (a, b): boolean => true;  },  unrelated: (_) => {},} : { callback: <T>(params: T) => (a: number, b: unknown) => boolean; unrelated: (_: string) => void; }
+
+  callback: <T,>(params: T) => {
+>callback : <T>(params: T) => (a: number, b: unknown) => boolean
+><T,>(params: T) => {    return (a, b): boolean => true;  } : <T>(params: T) => (a: number, b: unknown) => boolean
+>params : T
+
+    return (a, b): boolean => true;
+>(a, b): boolean => true : (a: number, b: unknown) => boolean
+>a : number
+>b : unknown
+>true : true
+
+  },
+  unrelated: (_) => {},
+>unrelated : (_: string) => void
+>(_) => {} : (_: string) => void
+>_ : string
+
+});
+
+// should error
+export const result3 = fn({
+>result3 : (params: unknown) => number
+>fn({  callback: <T,>(params: T) => {    return (a, b) => true;  },  unrelated: (_) => {},}) : (params: unknown) => number
+>fn : <P>(config: { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }) => (params: P) => number
+>{  callback: <T,>(params: T) => {    return (a, b) => true;  },  unrelated: (_) => {},} : { callback: <T>(params: T) => (a: number, b: unknown) => boolean; unrelated: (_: string) => void; }
+
+  callback: <T,>(params: T) => {
+>callback : <T>(params: T) => (a: number, b: unknown) => boolean
+><T,>(params: T) => {    return (a, b) => true;  } : <T>(params: T) => (a: number, b: unknown) => boolean
+>params : T
+
+    return (a, b) => true;
+>(a, b) => true : (a: number, b: unknown) => boolean
+>a : number
+>b : unknown
+>true : true
+
+  },
+  unrelated: (_) => {},
+>unrelated : (_: string) => void
+>(_) => {} : (_: string) => void
+>_ : string
+
+});
+
+declare function fn2<P>(config: {
+>fn2 : <P>(config: { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }) => any
+>config : { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }
+
+  callback: (params: P) => (context: number, params: P) => number;
+>callback : (params: P) => (context: number, params: P) => number
+>params : P
+>context : number
+>params : P
+
+  unrelated?: (arg: string) => void;
+>unrelated : ((arg: string) => void) | undefined
+>arg : string
+
+}): any;
+
+// should error
+export const result4 = fn2({
+>result4 : any
+>fn2({  callback: <T,>(params: T) => {    return (a: boolean, b) => (a ? 1 : 0);  },  unrelated: (_) => {},}) : any
+>fn2 : <P>(config: { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }) => any
+>{  callback: <T,>(params: T) => {    return (a: boolean, b) => (a ? 1 : 0);  },  unrelated: (_) => {},} : { callback: <T>(params: T) => (a: boolean, b: unknown) => 0 | 1; unrelated: (_: string) => void; }
+
+  callback: <T,>(params: T) => {
+>callback : <T>(params: T) => (a: boolean, b: unknown) => 0 | 1
+><T,>(params: T) => {    return (a: boolean, b) => (a ? 1 : 0);  } : <T>(params: T) => (a: boolean, b: unknown) => 0 | 1
+>params : T
+
+    return (a: boolean, b) => (a ? 1 : 0);
+>(a: boolean, b) => (a ? 1 : 0) : (a: boolean, b: unknown) => 0 | 1
+>a : boolean
+>b : unknown
+>(a ? 1 : 0) : 0 | 1
+>a ? 1 : 0 : 0 | 1
+>a : boolean
+>1 : 1
+>0 : 0
+
+  },
+  unrelated: (_) => {},
+>unrelated : (_: string) => void
+>(_) => {} : (_: string) => void
+>_ : string
+
+});
+
+// should error
+export const result5 = fn2({
+>result5 : any
+>fn2({  callback: <T,>(params: T) => {    return (a, b): boolean => true;  },  unrelated: (_) => {},}) : any
+>fn2 : <P>(config: { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }) => any
+>{  callback: <T,>(params: T) => {    return (a, b): boolean => true;  },  unrelated: (_) => {},} : { callback: <T>(params: T) => (a: number, b: unknown) => boolean; unrelated: (_: string) => void; }
+
+  callback: <T,>(params: T) => {
+>callback : <T>(params: T) => (a: number, b: unknown) => boolean
+><T,>(params: T) => {    return (a, b): boolean => true;  } : <T>(params: T) => (a: number, b: unknown) => boolean
+>params : T
+
+    return (a, b): boolean => true;
+>(a, b): boolean => true : (a: number, b: unknown) => boolean
+>a : number
+>b : unknown
+>true : true
+
+  },
+  unrelated: (_) => {},
+>unrelated : (_: string) => void
+>(_) => {} : (_: string) => void
+>_ : string
+
+});
+
+// should error
+export const result6 = fn2({
+>result6 : any
+>fn2({  callback: <T,>(params: T) => {    return (a, b) => true;  },  unrelated: (_) => {},}) : any
+>fn2 : <P>(config: { callback: (params: P) => (context: number, params: P) => number; unrelated?: (arg: string) => void; }) => any
+>{  callback: <T,>(params: T) => {    return (a, b) => true;  },  unrelated: (_) => {},} : { callback: <T>(params: T) => (a: number, b: unknown) => boolean; unrelated: (_: string) => void; }
+
+  callback: <T,>(params: T) => {
+>callback : <T>(params: T) => (a: number, b: unknown) => boolean
+><T,>(params: T) => {    return (a, b) => true;  } : <T>(params: T) => (a: number, b: unknown) => boolean
+>params : T
+
+    return (a, b) => true;
+>(a, b) => true : (a: number, b: unknown) => boolean
+>a : number
+>b : unknown
+>true : true
+
+  },
+  unrelated: (_) => {},
+>unrelated : (_: string) => void
+>(_) => {} : (_: string) => void
+>_ : string
+
+});
+
diff --git a/tsc/testdata/tests/cases/compiler/contextualTypingGenericFunction2.ts b/tsc/testdata/tests/cases/compiler/contextualTypingGenericFunction2.ts
new file mode 100644
index 0000000000000..c57e81d414747
--- /dev/null
+++ b/tsc/testdata/tests/cases/compiler/contextualTypingGenericFunction2.ts
@@ -0,0 +1,62 @@
+// @strict: true
+// @noEmit: true
+
+// https://github.com/microsoft/TypeScript/issues/61979
+
+declare function fn<P>(config: {
+  callback: (params: P) => (context: number, params: P) => number;
+  unrelated?: (arg: string) => void;
+}): (params: P) => number;
+
+// should error
+export const result1 = fn({
+  callback: <T,>(params: T) => {
+    return (a: boolean, b) => (a ? 1 : 0);
+  },
+  unrelated: (_) => {},
+});
+
+// should error
+export const result2 = fn({
+  callback: <T,>(params: T) => {
+    return (a, b): boolean => true;
+  },
+  unrelated: (_) => {},
+});
+
+// should error
+export const result3 = fn({
+  callback: <T,>(params: T) => {
+    return (a, b) => true;
+  },
+  unrelated: (_) => {},
+});
+
+declare function fn2<P>(config: {
+  callback: (params: P) => (context: number, params: P) => number;
+  unrelated?: (arg: string) => void;
+}): any;
+
+// should error
+export const result4 = fn2({
+  callback: <T,>(params: T) => {
+    return (a: boolean, b) => (a ? 1 : 0);
+  },
+  unrelated: (_) => {},
+});
+
+// should error
+export const result5 = fn2({
+  callback: <T,>(params: T) => {
+    return (a, b): boolean => true;
+  },
+  unrelated: (_) => {},
+});
+
+// should error
+export const result6 = fn2({
+  callback: <T,>(params: T) => {
+    return (a, b) => true;
+  },
+  unrelated: (_) => {},
+});