diff --git a/sway-core/src/semantic_analysis/namespace/trait_map.rs b/sway-core/src/semantic_analysis/namespace/trait_map.rs
index 6551432e7b0..92dc42dfcc3 100644
--- a/sway-core/src/semantic_analysis/namespace/trait_map.rs
+++ b/sway-core/src/semantic_analysis/namespace/trait_map.rs
@@ -933,11 +933,6 @@ impl TraitMap {
                         *map_type_id,
                         *type_id,
                     );
-                    type_id.subst(&SubstTypesContext::new(
-                        engines,
-                        &type_mapping,
-                        matches!(code_block_first_pass, CodeBlockFirstPass::No),
-                    ));
                     let trait_items: TraitItems = map_trait_items
                         .clone()
                         .into_iter()
diff --git a/sway-core/src/type_system/unify/unify_check.rs b/sway-core/src/type_system/unify/unify_check.rs
index f1242e94f64..04e3473d5b1 100644
--- a/sway-core/src/type_system/unify/unify_check.rs
+++ b/sway-core/src/type_system/unify/unify_check.rs
@@ -510,7 +510,8 @@ impl<'a> UnifyCheck<'a> {
                     // any type can be coerced into a generic,
                     // except if the type already contains the generic
                     (_e, _g @ UnknownGeneric { .. }) => {
-                        !OccursCheck::new(self.engines).check(right, left)
+                        matches!(self.mode, ConstraintSubset)
+                            || !OccursCheck::new(self.engines).check(right, left)
                     }
 
                     (Alias { ty: l_ty, .. }, Alias { ty: r_ty, .. }) => {
diff --git a/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/Forc.lock b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/Forc.lock
new file mode 100644
index 00000000000..c3615fcc0e6
--- /dev/null
+++ b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/Forc.lock
@@ -0,0 +1,13 @@
+[[package]]
+name = "core"
+source = "path+from-root-9C31758901D851EE"
+
+[[package]]
+name = "nested_generics"
+source = "member"
+dependencies = ["std"]
+
+[[package]]
+name = "std"
+source = "path+from-root-9C31758901D851EE"
+dependencies = ["core"]
diff --git a/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/Forc.toml b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/Forc.toml
new file mode 100644
index 00000000000..bf41a0eb817
--- /dev/null
+++ b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/Forc.toml
@@ -0,0 +1,8 @@
+[project]
+authors = ["Fuel Labs <contact@fuel.sh>"]
+entry = "main.sw"
+license = "Apache-2.0"
+name = "nested_generics"
+
+[dependencies]
+std = { path = "../../../../reduced_std_libs/sway-lib-std-assert" }
diff --git a/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/json_abi_oracle.json b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/json_abi_oracle.json
new file mode 100644
index 00000000000..03b2f150939
--- /dev/null
+++ b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/json_abi_oracle.json
@@ -0,0 +1,25 @@
+{
+  "configurables": [],
+  "functions": [
+    {
+      "attributes": null,
+      "inputs": [],
+      "name": "main",
+      "output": {
+        "name": "",
+        "type": 0,
+        "typeArguments": null
+      }
+    }
+  ],
+  "loggedTypes": [],
+  "messagesTypes": [],
+  "types": [
+    {
+      "components": null,
+      "type": "bool",
+      "typeId": 0,
+      "typeParameters": null
+    }
+  ]
+}
\ No newline at end of file
diff --git a/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/json_abi_oracle_new_encoding.json b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/json_abi_oracle_new_encoding.json
new file mode 100644
index 00000000000..668a88f2e07
--- /dev/null
+++ b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/json_abi_oracle_new_encoding.json
@@ -0,0 +1,23 @@
+{
+  "concreteTypes": [
+    {
+      "concreteTypeId": "b760f44fa5965c2474a3b471467a22c43185152129295af588b022ae50b50903",
+      "type": "bool"
+    }
+  ],
+  "configurables": [],
+  "encodingVersion": "1",
+  "functions": [
+    {
+      "attributes": null,
+      "inputs": [],
+      "name": "main",
+      "output": "b760f44fa5965c2474a3b471467a22c43185152129295af588b022ae50b50903"
+    }
+  ],
+  "loggedTypes": [],
+  "messagesTypes": [],
+  "metadataTypes": [],
+  "programType": "script",
+  "specVersion": "1"
+}
\ No newline at end of file
diff --git a/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/src/main.sw b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/src/main.sw
new file mode 100644
index 00000000000..90af63e4401
--- /dev/null
+++ b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/src/main.sw
@@ -0,0 +1,74 @@
+script;
+
+enum MyOption<T> {
+    Some: T,
+    None: (),
+}
+
+impl<T> MyOption<T> {
+    fn new() -> Self {
+        Self::None
+    }
+
+    fn is_none(self) -> bool {
+        true
+    }
+}
+
+fn generic_arg_in_function_method_call<T>() {
+    let o: MyOption<u64> = MyOption::None;
+    let _ = o.is_none();
+    
+    let o: MyOption<MyOption<u64>> = MyOption::None;
+    let _ = o.is_none();
+
+    let o: MyOption<T> = MyOption::None;
+    let _ = o.is_none();
+    
+    let o: MyOption<MyOption<T>> = MyOption::None;
+    let _ = o.is_none();
+    
+    let _ = MyOption::is_none(o);
+}
+
+fn generic_arg_in_function_associated_function_call<T>() {
+    let _ = MyOption::<u64>::new();
+    let o: MyOption<u64> = MyOption::new();
+    
+    let _ = MyOption::<MyOption<u64>>::new();
+    let o: MyOption<MyOption<u64>> = MyOption::new();
+
+    let _ = MyOption::<T>::new();
+    let o: MyOption<T> = MyOption::new();
+    
+    let _ = MyOption::<MyOption<T>>::new();
+}
+
+struct S<T> { }
+
+impl<T> S<T> {
+    fn generic_arg_in_type() {
+        let o: MyOption<u64> = MyOption::None;
+        let _ = o.is_none();
+        
+        let o: MyOption<MyOption<u64>> = MyOption::None;
+        let _ = o.is_none();
+    
+        let o: MyOption<T> = MyOption::None;
+        let _ = o.is_none();
+        
+        let o: MyOption<MyOption<T>> = MyOption::None;
+        let _ = o.is_none();
+        
+        let _ = MyOption::is_none(o);
+    }
+}
+
+pub fn main() ->  bool {
+    generic_arg_in_function_method_call::<(())>();
+    S::<()>::generic_arg_in_type();
+
+    generic_arg_in_function_associated_function_call::<()>();
+
+    true
+}
\ No newline at end of file
diff --git a/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/test.toml b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/test.toml
new file mode 100644
index 00000000000..4458095bab6
--- /dev/null
+++ b/test/src/e2e_vm_tests/test_programs/should_pass/language/nested_generics/test.toml
@@ -0,0 +1,5 @@
+category = "run"
+expected_result = { action = "return", value = 1 }
+expected_result_new_encoding = { action = "return_data", value = "01" }
+validate_abi = true
+expected_warnings = 30