diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index 683874e2d10f0..bdda8d18770e6 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -39498,7 +39498,7 @@ export function createTypeChecker(host: TypeCheckerHost): TypeChecker {
         return getTypeOfSymbol(getSymbolOfDeclaration(node));
     }
 
-    function contextuallyCheckFunctionExpressionOrObjectLiteralMethod(node: FunctionExpression | ArrowFunction | MethodDeclaration, checkMode?: CheckMode) {
+    function contextuallyCheckFunctionExpressionOrObjectLiteralMethod(node: FunctionExpression | ArrowFunction | MethodDeclaration, checkMode = CheckMode.Normal) {
         const links = getNodeLinks(node);
         // Check if function expression is contextually typed and assign parameter types if so.
         if (!(links.flags & NodeCheckFlags.ContextChecked)) {
@@ -39516,7 +39516,7 @@ export function createTypeChecker(host: TypeCheckerHost): TypeChecker {
                     if (contextualSignature) {
                         const inferenceContext = getInferenceContext(node);
                         let instantiatedContextualSignature: Signature | undefined;
-                        if (checkMode && checkMode & CheckMode.Inferential) {
+                        if (checkMode & CheckMode.Inferential) {
                             inferFromAnnotatedParametersAndReturn(signature, contextualSignature, inferenceContext!);
                             const restType = getEffectiveRestType(contextualSignature);
                             if (restType && restType.flags & TypeFlags.TypeParameter) {
@@ -39534,12 +39534,14 @@ export function createTypeChecker(host: TypeCheckerHost): TypeChecker {
                 }
                 else if (contextualSignature && !node.typeParameters && contextualSignature.parameters.length > node.parameters.length) {
                     const inferenceContext = getInferenceContext(node);
-                    if (checkMode && checkMode & CheckMode.Inferential) {
+                    if (checkMode & CheckMode.Inferential) {
                         inferFromAnnotatedParametersAndReturn(signature, contextualSignature, inferenceContext!);
                     }
                 }
                 if (contextualSignature && !getReturnTypeFromAnnotation(node) && !signature.resolvedReturnType) {
-                    const returnType = getReturnTypeFromBody(node, checkMode);
+                    // `.resolvedReturnType` is cached indefinitely so the return type here has to be computed without `CheckMode.SkipContextSensitive`
+                    // otherwise `anyFunctionType` could leak as part of the computed (and cached) return type
+                    const returnType = getReturnTypeFromBody(node, checkMode & ~CheckMode.SkipContextSensitive);
                     if (!signature.resolvedReturnType) {
                         signature.resolvedReturnType = returnType;
                     }
diff --git a/tests/baselines/reference/contextualTypingGenericFunction2.errors.txt b/tests/baselines/reference/contextualTypingGenericFunction2.errors.txt
new file mode 100644
index 0000000000000..6c13121fb4ae0
--- /dev/null
+++ b/tests/baselines/reference/contextualTypingGenericFunction2.errors.txt
@@ -0,0 +1,115 @@
+contextualTypingGenericFunction2.ts(10,3): error TS2322: Type '<T>(params: T) => (a: boolean, b: unknown) => 1 | 0' is not assignable to type '(params: T) => (context: number, params: T) => number'.
+  Type '(a: boolean, b: unknown) => 1 | 0' 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'.
+  Call signature return types '(a: number, b: unknown) => boolean' and '(context: number, params: T) => number' are incompatible.
+    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'.
+  Call signature return types '(a: number, b: unknown) => boolean' and '(context: number, params: T) => number' are incompatible.
+    Type 'boolean' is not assignable to type 'number'.
+contextualTypingGenericFunction2.ts(39,3): error TS2322: Type '<T>(params: T) => (a: boolean, b: unknown) => 1 | 0' is not assignable to type '(params: unknown) => (context: number, params: unknown) => number'.
+  Type '(a: boolean, b: unknown) => 1 | 0' 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: T) => (context: number, params: T) => number'.
+  Call signature return types '(a: number, b: unknown) => boolean' and '(context: number, params: T) => number' are incompatible.
+    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: T) => (context: number, params: T) => number'.
+  Call signature return types '(a: number, b: unknown) => boolean' and '(context: number, params: T) => number' are incompatible.
+    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) => 1 | 0' is not assignable to type '(params: T) => (context: number, params: T) => number'.
+!!! error TS2322:   Type '(a: boolean, b: unknown) => 1 | 0' 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:   Call signature return types '(a: number, b: unknown) => boolean' and '(context: number, params: T) => number' are incompatible.
+!!! 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:   Call signature return types '(a: number, b: unknown) => boolean' and '(context: number, params: T) => number' are incompatible.
+!!! 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) => 1 | 0' is not assignable to type '(params: unknown) => (context: number, params: unknown) => number'.
+!!! error TS2322:   Type '(a: boolean, b: unknown) => 1 | 0' 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 = 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:   Call signature return types '(a: number, b: unknown) => boolean' and '(context: number, params: T) => number' are incompatible.
+!!! 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 result6 = 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:   Call signature return types '(a: number, b: unknown) => boolean' and '(context: number, params: T) => number' are incompatible.
+!!! 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: (_) => {},
+    });
+    
\ No newline at end of file
diff --git a/tests/baselines/reference/contextualTypingGenericFunction2.symbols b/tests/baselines/reference/contextualTypingGenericFunction2.symbols
new file mode 100644
index 0000000000000..674d0b621d480
--- /dev/null
+++ b/tests/baselines/reference/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 = fn({
+>result5 : Symbol(result5, Decl(contextualTypingGenericFunction2.ts, 45, 12))
+>fn : Symbol(fn, Decl(contextualTypingGenericFunction2.ts, 0, 0))
+
+  callback: <T,>(params: T) => {
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 45, 27))
+>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 = fn({
+>result6 : Symbol(result6, Decl(contextualTypingGenericFunction2.ts, 53, 12))
+>fn : Symbol(fn, Decl(contextualTypingGenericFunction2.ts, 0, 0))
+
+  callback: <T,>(params: T) => {
+>callback : Symbol(callback, Decl(contextualTypingGenericFunction2.ts, 53, 27))
+>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/tests/baselines/reference/contextualTypingGenericFunction2.types b/tests/baselines/reference/contextualTypingGenericFunction2.types
new file mode 100644
index 0000000000000..72332c93c5e6d
--- /dev/null
+++ b/tests/baselines/reference/contextualTypingGenericFunction2.types
@@ -0,0 +1,311 @@
+//// [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) => 1 | 0; unrelated: (_: string) => void; }
+>                                                                                                        : ^^^^^^^^^^^^^ ^^      ^^ ^^^^^^ ^^       ^^ ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^^^^^^^^^^^^^^^^^^^^
+
+  callback: <T,>(params: T) => {
+>callback : <T>(params: T) => (a: boolean, b: unknown) => 1 | 0
+>         : ^ ^^      ^^ ^^^^^^ ^^       ^^ ^^^^^^^^^^^^^^^^^^^
+><T,>(params: T) => {    return (a: boolean, b) => (a ? 1 : 0);  } : <T>(params: T) => (a: boolean, b: unknown) => 1 | 0
+>                                                                  : ^ ^^      ^^ ^^^^^^ ^^       ^^ ^^^^^^^^^^^^^^^^^^^
+>params : T
+>       : ^
+
+    return (a: boolean, b) => (a ? 1 : 0);
+>(a: boolean, b) => (a ? 1 : 0) : (a: boolean, b: unknown) => 1 | 0
+>                               : ^ ^^       ^^ ^^^^^^^^^^^^^^^^^^^
+>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) => 1 | 0; unrelated: (_: string) => void; }
+>                                                                                                        : ^^^^^^^^^^^^^ ^^      ^^ ^^^^^^ ^^       ^^ ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^^^^^^^^^^^^^^^^^^^^
+
+  callback: <T,>(params: T) => {
+>callback : <T>(params: T) => (a: boolean, b: unknown) => 1 | 0
+>         : ^ ^^      ^^ ^^^^^^ ^^       ^^ ^^^^^^^^^^^^^^^^^^^
+><T,>(params: T) => {    return (a: boolean, b) => (a ? 1 : 0);  } : <T>(params: T) => (a: boolean, b: unknown) => 1 | 0
+>                                                                  : ^ ^^      ^^ ^^^^^^ ^^       ^^ ^^^^^^^^^^^^^^^^^^^
+>params : T
+>       : ^
+
+    return (a: boolean, b) => (a ? 1 : 0);
+>(a: boolean, b) => (a ? 1 : 0) : (a: boolean, b: unknown) => 1 | 0
+>                               : ^ ^^       ^^ ^^^^^^^^^^^^^^^^^^^
+>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 = fn({
+>result5 : (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 result6 = fn({
+>result6 : (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
+>  : ^^^^^^
+
+});
+
diff --git a/tests/cases/compiler/contextualTypingGenericFunction2.ts b/tests/cases/compiler/contextualTypingGenericFunction2.ts
new file mode 100644
index 0000000000000..ba73e192e52f8
--- /dev/null
+++ b/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 = fn({
+  callback: <T,>(params: T) => {
+    return (a, b): boolean => true;
+  },
+  unrelated: (_) => {},
+});
+
+// should error
+export const result6 = fn({
+  callback: <T,>(params: T) => {
+    return (a, b) => true;
+  },
+  unrelated: (_) => {},
+});