diff --git a/jerry-core/parser/js/parser.cpp b/jerry-core/parser/js/parser.cpp
index 3babf7d87e..2a9cf0f533 100644
--- a/jerry-core/parser/js/parser.cpp
+++ b/jerry-core/parser/js/parser.cpp
@@ -65,6 +65,7 @@ static void parse_statement (void);
 static operand parse_assignment_expression (bool);
 static void parse_source_element_list (bool);
 static operand parse_argument_list (varg_list_type, operand, uint8_t *, operand *);
+static void process_keyword_names (void);
 static void skip_braces (void);
 static void skip_parens (void);
 
@@ -2463,62 +2464,70 @@ skip_optional_name_and_parens (void)
   }
 }
 
-static void
-skip_braces (void)
+static void process_keyword_names ()
 {
-  current_token_must_be (TOK_OPEN_BRACE);
-
-  uint8_t nesting_level = 1;
-  while (nesting_level > 0)
+  if (token_is (TOK_KEYWORD))
   {
+    keyword kw = (keyword) token_data ();
     skip_newlines ();
-    if (token_is (TOK_OPEN_BRACE))
+    if (token_is (TOK_COLON))
     {
-      nesting_level++;
+      lexer_add_keyword_or_numeric_literal_if_not_present (
+        create_literal_from_str_compute_len (lexer_keyword_to_string (kw)));
     }
-    else if (token_is (TOK_CLOSE_BRACE))
+    else
     {
-      nesting_level--;
+      lexer_save_token (tok);
     }
-    else if (token_is (TOK_KEYWORD))
+  }
+  else if (token_is (TOK_NAME))
+  {
+    if (literal_equal_type_s (lexer_get_literal_by_id (token_data ()), "get")
+        || literal_equal_type_s (lexer_get_literal_by_id (token_data ()), "set"))
     {
-      keyword kw = (keyword) token_data ();
       skip_newlines ();
-      if (token_is (TOK_COLON))
-      {
-        lexer_add_keyword_or_numeric_literal_if_not_present (
-          create_literal_from_str_compute_len (lexer_keyword_to_string (kw)));
-      }
-      else
-      {
-        lexer_save_token (tok);
-      }
-    }
-    else if (token_is (TOK_NAME))
-    {
-      if (literal_equal_type_s (lexer_get_literal_by_id (token_data ()), "get")
-          || literal_equal_type_s (lexer_get_literal_by_id (token_data ()), "set"))
+      if (token_is (TOK_KEYWORD))
       {
+        keyword kw = (keyword) token_data ();
         skip_newlines ();
-        if (token_is (TOK_KEYWORD))
+        if (token_is (TOK_OPEN_PAREN))
         {
-          keyword kw = (keyword) token_data ();
-          skip_newlines ();
-          if (token_is (TOK_OPEN_PAREN))
-          {
-            lexer_add_keyword_or_numeric_literal_if_not_present (
-              create_literal_from_str_compute_len (lexer_keyword_to_string (kw)));
-          }
-          else
-          {
-            lexer_save_token (tok);
-          }
+          lexer_add_keyword_or_numeric_literal_if_not_present (
+            create_literal_from_str_compute_len (lexer_keyword_to_string (kw)));
         }
         else
         {
           lexer_save_token (tok);
         }
       }
+      else
+      {
+        lexer_save_token (tok);
+      }
+    }
+  }
+}
+
+static void
+skip_braces (void)
+{
+  current_token_must_be (TOK_OPEN_BRACE);
+
+  uint8_t nesting_level = 1;
+  while (nesting_level > 0)
+  {
+    skip_newlines ();
+    if (token_is (TOK_OPEN_BRACE))
+    {
+      nesting_level++;
+    }
+    else if (token_is (TOK_CLOSE_BRACE))
+    {
+      nesting_level--;
+    }
+    else
+    {
+      process_keyword_names ();
     }
   }
 }
@@ -2649,9 +2658,18 @@ preparse_scope (bool is_global)
 
   dump_reg_var_decl_for_rewrite ();
 
-  while (!token_is (end_tt))
+  size_t nesting_level = 0;
+  while (nesting_level > 0 || !token_is (end_tt))
   {
-    if (is_keyword (KW_VAR))
+    if (token_is (TOK_OPEN_BRACE))
+    {
+      nesting_level++;
+    }
+    else if (token_is (TOK_CLOSE_BRACE))
+    {
+      nesting_level--;
+    }
+    else if (is_keyword (KW_VAR))
     {
       preparse_var_decls ();
     }
@@ -2663,6 +2681,10 @@ preparse_scope (bool is_global)
     {
       skip_braces ();
     }
+    else
+    {
+      process_keyword_names ();
+    }
     skip_newlines ();
   }
 
diff --git a/tests/jerry/var_decl.js b/tests/jerry/var_decl.js
new file mode 100644
index 0000000000..021f24b0e4
--- /dev/null
+++ b/tests/jerry/var_decl.js
@@ -0,0 +1,19 @@
+// Copyright 2015 Samsung Electronics Co., Ltd.
+//
+// Licensed under the Apache License, Version 2.0 (the "License");
+// you may not use this file except in compliance with the License.
+// You may obtain a copy of the License at
+//
+//     http://www.apache.org/licenses/LICENSE-2.0
+//
+// Unless required by applicable law or agreed to in writing, software
+// distributed under the License is distributed on an "AS IS" BASIS
+// WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+// See the License for the specific language governing permissions and
+// limitations under the License.
+
+{
+  var y;
+}
+var x = y;
+assert (x === undefined);