diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index 9d61d221b1f..c87062a212f 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -16703,8 +16703,9 @@ namespace ts {
                 }
             }
             if (signature.hasRestParameter && isRestParameterIndex(context, signature.parameters.length - 1)) {
+                // parameter might be a transient symbol generated by use of `arguments` in the function body.
                 const parameter = lastOrUndefined(signature.parameters);
-                if (!getEffectiveTypeAnnotationNode(<ParameterDeclaration>parameter.valueDeclaration)) {
+                if (isTransientSymbol(parameter) || !getEffectiveTypeAnnotationNode(<ParameterDeclaration>parameter.valueDeclaration)) {
                     const contextualParameterType = getTypeOfSymbol(lastOrUndefined(context.parameters));
                     assignTypeToParameterAndFixTypeParameters(parameter, contextualParameterType);
                 }
diff --git a/tests/baselines/reference/contextuallyTypeArgumentsKeyword.symbols b/tests/baselines/reference/contextuallyTypeArgumentsKeyword.symbols
new file mode 100644
index 00000000000..556c362f27e
--- /dev/null
+++ b/tests/baselines/reference/contextuallyTypeArgumentsKeyword.symbols
@@ -0,0 +1,14 @@
+=== tests/cases/compiler/foo.js ===
+// Repro for #16585
+const x = {
+>x : Symbol(x, Decl(foo.js, 1, 5))
+
+    bar() {
+>bar : Symbol(bar, Decl(foo.js, 1, 11))
+
+        setTimeout(function() { arguments }, 0);
+>setTimeout : Symbol(setTimeout, Decl(lib.dom.d.ts, --, --), Decl(lib.dom.d.ts, --, --))
+>arguments : Symbol(arguments)
+    }
+}
+
diff --git a/tests/baselines/reference/contextuallyTypeArgumentsKeyword.types b/tests/baselines/reference/contextuallyTypeArgumentsKeyword.types
new file mode 100644
index 00000000000..2f90f47f370
--- /dev/null
+++ b/tests/baselines/reference/contextuallyTypeArgumentsKeyword.types
@@ -0,0 +1,18 @@
+=== tests/cases/compiler/foo.js ===
+// Repro for #16585
+const x = {
+>x : { [x: string]: any; bar(): void; }
+>{    bar() {        setTimeout(function() { arguments }, 0);    }} : { [x: string]: any; bar(): void; }
+
+    bar() {
+>bar : () => void
+
+        setTimeout(function() { arguments }, 0);
+>setTimeout(function() { arguments }, 0) : number
+>setTimeout : { (handler: (...args: any[]) => void, timeout: number): number; (handler: any, timeout?: any, ...args: any[]): number; }
+>function() { arguments } : (...args: any[]) => void
+>arguments : IArguments
+>0 : 0
+    }
+}
+
diff --git a/tests/cases/compiler/contextuallyTypeArgumentsKeyword.ts b/tests/cases/compiler/contextuallyTypeArgumentsKeyword.ts
new file mode 100644
index 00000000000..9421e70c4e8
--- /dev/null
+++ b/tests/cases/compiler/contextuallyTypeArgumentsKeyword.ts
@@ -0,0 +1,11 @@
+// @noEmit: true
+// @allowJs: true
+// @checkJs: true
+// @lib: es2017, dom
+// @Filename: foo.js
+// Repro for #16585
+const x = {
+    bar() {
+        setTimeout(function() { arguments }, 0);
+    }
+}