diff --git a/compiler/src/dotty/tools/dotc/core/GadtConstraint.scala b/compiler/src/dotty/tools/dotc/core/GadtConstraint.scala
index 2faf721a9da8..fbb5b293a9ea 100644
--- a/compiler/src/dotty/tools/dotc/core/GadtConstraint.scala
+++ b/compiler/src/dotty/tools/dotc/core/GadtConstraint.scala
@@ -116,7 +116,7 @@ final class ProperGadtConstraint private(
     )
 
     val tvars = params.lazyZip(poly1.paramRefs).map { (sym, paramRef) =>
-      val tv = new TypeVar(paramRef, creatorState = null)
+      val tv = new TypeVar(paramRef, creatorState = null, ctx.owner.ownersIterator.length)
       mapping = mapping.updated(sym, tv)
       reverseMapping = reverseMapping.updated(tv.origin, sym)
       tv
diff --git a/compiler/src/dotty/tools/dotc/core/Types.scala b/compiler/src/dotty/tools/dotc/core/Types.scala
index b3629dc2386b..8ce110b5539c 100644
--- a/compiler/src/dotty/tools/dotc/core/Types.scala
+++ b/compiler/src/dotty/tools/dotc/core/Types.scala
@@ -4110,11 +4110,8 @@ object Types {
    *
    *  @param  origin        The parameter that's tracked by the type variable.
    *  @param  creatorState  The typer state in which the variable was created.
-   *
-   *  `owningTree` and `owner` are used to determine whether a type-variable can be instantiated
-   *  at some given point. See `Inferencing#interpolateUndetVars`.
    */
-  final class TypeVar(private var _origin: TypeParamRef, creatorState: TyperState) extends CachedProxyType with ValueType {
+  final class TypeVar(private var _origin: TypeParamRef, creatorState: TyperState, level: Int) extends CachedProxyType with ValueType {
 
     def origin: TypeParamRef = _origin
 
@@ -4150,14 +4147,34 @@ object Types {
     /** Is the variable already instantiated? */
     def isInstantiated(implicit ctx: Context): Boolean = instanceOpt.exists
 
+    def hygienic(tp: Type)(using Context): Type =
+      val problemSyms = new TypeAccumulator[Set[Symbol]]:
+        def apply(syms: Set[Symbol], t: Type): Set[Symbol] = t match
+          case ref @ TermRef(NoPrefix, _)
+          if ref.symbol.maybeOwner.ownersIterator.length > level =>
+            syms + ref.symbol
+          case _ =>
+            foldOver(syms, t)
+      val problems = problemSyms(Set.empty, tp)
+      if problems.isEmpty then tp
+      else
+        val htp = ctx.typer.avoid(tp, problems.toList)
+        val msg = i"Inaccessible variables captured by instance for $this.\n$tp was fixed to $htp"
+        typr.println(msg)
+        val bound = ctx.typeComparer.fullUpperBound(origin)
+        if !(htp <:< bound) then
+          throw new TypeError(s"$msg,\nbut this does not conform to upper bound $bound")
+        htp
+
     /** Instantiate variable with given type */
     def instantiateWith(tp: Type)(implicit ctx: Context): Type = {
       assert(tp ne this, s"self instantiation of ${tp.show}, constraint = ${ctx.typerState.constraint.show}")
-      typr.println(s"instantiating ${this.show} with ${tp.show}")
+      val htp = hygienic(tp)
+      typr.println(s"instantiating ${this.show} with ${htp.show}")
       if ((ctx.typerState eq owningState.get) && !ctx.typeComparer.subtypeCheckInProgress)
-        inst = tp
-      ctx.typerState.constraint = ctx.typerState.constraint.replace(origin, tp)
-      tp
+        inst = htp
+      ctx.typerState.constraint = ctx.typerState.constraint.replace(origin, htp)
+      htp
     }
 
     /** Instantiate variable from the constraints over its `origin`.
diff --git a/compiler/src/dotty/tools/dotc/typer/ProtoTypes.scala b/compiler/src/dotty/tools/dotc/typer/ProtoTypes.scala
index b62e1bc7f0e7..571fa9ffc260 100644
--- a/compiler/src/dotty/tools/dotc/typer/ProtoTypes.scala
+++ b/compiler/src/dotty/tools/dotc/typer/ProtoTypes.scala
@@ -502,7 +502,7 @@ object ProtoTypes {
       for (paramRef <- tl.paramRefs)
       yield {
         val tt = new TypeVarBinder().withSpan(owningTree.span)
-        val tvar = new TypeVar(paramRef, state)
+        val tvar = new TypeVar(paramRef, state, ctx.owner.ownersIterator.length)
         state.ownedVars += tvar
         tt.withType(tvar)
       }
diff --git a/tests/neg/i8861.scala b/tests/neg/i8861.scala
new file mode 100644
index 000000000000..87f1884f6155
--- /dev/null
+++ b/tests/neg/i8861.scala
@@ -0,0 +1,31 @@
+object Test {
+  sealed trait Container { s =>
+    type A
+    def visit[R](int: IntV & s.type => R, str: StrV & s.type => R): R
+  }
+  final class IntV extends Container { s =>
+    type A = Int
+    val i: Int = 42
+    def visit[R](int: IntV & s.type => R, str: StrV & s.type => R): R = int(this)
+  }
+  final class StrV extends Container { s =>
+    type A = String
+    val t: String = "hello"
+    def visit[R](int: IntV & s.type => R, str: StrV & s.type => R): R = str(this)
+  }
+
+  def minimalOk[R](c: Container { type A = R }): R = c.visit[R](
+    int = vi => vi.i : vi.A,
+    str = vs => vs.t : vs.A
+  )
+  def minimalFail[M](c: Container { type A = M }): M = c.visit(
+    int = vi => vi.i : vi.A,
+    str = vs => vs.t : vs.A  // error
+  )
+
+  def main(args: Array[String]): Unit = {
+    val e: Container { type A = String } = new StrV
+    println(minimalOk(e)) // this one prints "hello"
+    println(minimalFail(e)) // this one fails with ClassCastException: class java.lang.String cannot be cast to class java.lang.Integer
+  }
+}
\ No newline at end of file