diff --git a/src/compiler/parser.ts b/src/compiler/parser.ts
index caa62b7ae9e..79140cff165 100644
--- a/src/compiler/parser.ts
+++ b/src/compiler/parser.ts
@@ -3916,14 +3916,14 @@ module ts {
         }
 
         function parseSourceElement() {
-            return parseSourceElementOrModuleElement(ModifierContext.SourceElements, /*allowLetAndConstDeclarations*/ false);
+            return parseSourceElementOrModuleElement(ModifierContext.SourceElements);
         }
 
         function parseModuleElement() {
-            return parseSourceElementOrModuleElement(ModifierContext.ModuleElements, /*allowLetAndConstDeclarations*/ true);
+            return parseSourceElementOrModuleElement(ModifierContext.ModuleElements);
         }
 
-        function parseSourceElementOrModuleElement(modifierContext: ModifierContext, allowLetAndConstDeclarations: boolean): Statement {
+        function parseSourceElementOrModuleElement(modifierContext: ModifierContext): Statement {
             if (isDeclaration()) {
                 return parseDeclaration(modifierContext);
             }
@@ -3931,7 +3931,7 @@ module ts {
             var statementStart = scanner.getTokenPos();
             var statementFirstTokenLength = scanner.getTextPos() - statementStart;
             var errorCountBeforeStatement = file.syntacticErrors.length;
-            var statement = parseStatement(allowLetAndConstDeclarations);
+            var statement = parseStatement(/*allowLetAndConstDeclarations*/ true);
 
             if (inAmbientContext && file.syntacticErrors.length === errorCountBeforeStatement) {
                 grammarErrorAtPos(statementStart, statementFirstTokenLength, Diagnostics.Statements_are_not_allowed_in_ambient_contexts);
diff --git a/tests/baselines/reference/letDeclarations-validContexts.errors.txt b/tests/baselines/reference/letDeclarations-validContexts.errors.txt
index de6cf7beef4..3f3b7a2634f 100644
--- a/tests/baselines/reference/letDeclarations-validContexts.errors.txt
+++ b/tests/baselines/reference/letDeclarations-validContexts.errors.txt
@@ -126,4 +126,24 @@ tests/cases/compiler/letDeclarations-validContexts.ts(20,7): error TS2410: All s
         f2: () => {
             let l29 = 0;
         }
+    }
+    
+    // labels
+    label: let l30 = 0;
+    {
+        label2: let l31 = 0;
+    }
+    
+    function f3() {
+        label: let l32 = 0;
+        {
+            label2: let l33 = 0;
+        }
+    }
+    
+    module m3 {
+        label: let l34 = 0;
+        {
+            label2: let l35 = 0;
+        }
     }
\ No newline at end of file
diff --git a/tests/baselines/reference/letDeclarations-validContexts.js b/tests/baselines/reference/letDeclarations-validContexts.js
index daa25014ab3..13eaafb0712 100644
--- a/tests/baselines/reference/letDeclarations-validContexts.js
+++ b/tests/baselines/reference/letDeclarations-validContexts.js
@@ -121,6 +121,26 @@ var o = {
     f2: () => {
         let l29 = 0;
     }
+}
+
+// labels
+label: let l30 = 0;
+{
+    label2: let l31 = 0;
+}
+
+function f3() {
+    label: let l32 = 0;
+    {
+        label2: let l33 = 0;
+    }
+}
+
+module m3 {
+    label: let l34 = 0;
+    {
+        label2: let l35 = 0;
+    }
 }
 
 //// [letDeclarations-validContexts.js]
@@ -227,3 +247,20 @@ var o = {
         let l29 = 0;
     }
 };
+label: let l30 = 0;
+{
+    label2: let l31 = 0;
+}
+function f3() {
+    label: let l32 = 0;
+    {
+        label2: let l33 = 0;
+    }
+}
+var m3;
+(function (m3) {
+    label: let l34 = 0;
+    {
+        label2: let l35 = 0;
+    }
+})(m3 || (m3 = {}));
diff --git a/tests/cases/compiler/letDeclarations-validContexts.ts b/tests/cases/compiler/letDeclarations-validContexts.ts
index 32801f2d009..baedfa2644c 100644
--- a/tests/cases/compiler/letDeclarations-validContexts.ts
+++ b/tests/cases/compiler/letDeclarations-validContexts.ts
@@ -121,4 +121,24 @@ var o = {
     f2: () => {
         let l29 = 0;
     }
+}
+
+// labels
+label: let l30 = 0;
+{
+    label2: let l31 = 0;
+}
+
+function f3() {
+    label: let l32 = 0;
+    {
+        label2: let l33 = 0;
+    }
+}
+
+module m3 {
+    label: let l34 = 0;
+    {
+        label2: let l35 = 0;
+    }
 }
\ No newline at end of file