diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index f79b04904b1c6..80e17ea86a221 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -11295,7 +11295,7 @@ namespace ts {
                 }
                 else {
                     const sub = instantiateType((<SubstitutionType>type).substitute, mapper);
-                    if (sub.flags & TypeFlags.AnyOrUnknown || isTypeSubtypeOf(getRestrictiveInstantiation(maybeVariable), getRestrictiveInstantiation(sub))) {
+                    if (sub.flags & TypeFlags.AnyOrUnknown || isTypeAssignableTo(getRestrictiveInstantiation(maybeVariable), getRestrictiveInstantiation(sub))) {
                         return maybeVariable;
                     }
                     return sub;
diff --git a/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.js b/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.js
new file mode 100644
index 0000000000000..722483f5f553d
--- /dev/null
+++ b/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.js
@@ -0,0 +1,33 @@
+//// [substitutionTypeNoMergeOfAssignableType.ts]
+interface Entry {
+    comment?: string;
+ }
+ 
+ interface Entity {
+     fields: {[key: string]: Entry};
+ }
+ 
+ type Fields<E extends Entity> = {
+     [P in keyof E["fields"]]: E["fields"][P]
+ };
+ 
+ type Nodes<T = any> = {
+     [P in keyof T]: T[P] extends Entity
+         ? Fields<T[P]>
+         : T[P]
+ };
+ 
+ function makeEntityStore<T extends Record<string, Entity>>(config: T): Nodes<T> {
+     return {} as Nodes<T>
+ }
+ 
+ const myTest = makeEntityStore({ test: { fields: { id: {} } } });
+ myTest.test
+ 
+
+//// [substitutionTypeNoMergeOfAssignableType.js]
+function makeEntityStore(config) {
+    return {};
+}
+var myTest = makeEntityStore({ test: { fields: { id: {} } } });
+myTest.test;
diff --git a/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.symbols b/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.symbols
new file mode 100644
index 0000000000000..4d1641b535516
--- /dev/null
+++ b/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.symbols
@@ -0,0 +1,79 @@
+=== tests/cases/compiler/substitutionTypeNoMergeOfAssignableType.ts ===
+interface Entry {
+>Entry : Symbol(Entry, Decl(substitutionTypeNoMergeOfAssignableType.ts, 0, 0))
+
+    comment?: string;
+>comment : Symbol(Entry.comment, Decl(substitutionTypeNoMergeOfAssignableType.ts, 0, 17))
+ }
+ 
+ interface Entity {
+>Entity : Symbol(Entity, Decl(substitutionTypeNoMergeOfAssignableType.ts, 2, 2))
+
+     fields: {[key: string]: Entry};
+>fields : Symbol(Entity.fields, Decl(substitutionTypeNoMergeOfAssignableType.ts, 4, 19))
+>key : Symbol(key, Decl(substitutionTypeNoMergeOfAssignableType.ts, 5, 15))
+>Entry : Symbol(Entry, Decl(substitutionTypeNoMergeOfAssignableType.ts, 0, 0))
+ }
+ 
+ type Fields<E extends Entity> = {
+>Fields : Symbol(Fields, Decl(substitutionTypeNoMergeOfAssignableType.ts, 6, 2))
+>E : Symbol(E, Decl(substitutionTypeNoMergeOfAssignableType.ts, 8, 13))
+>Entity : Symbol(Entity, Decl(substitutionTypeNoMergeOfAssignableType.ts, 2, 2))
+
+     [P in keyof E["fields"]]: E["fields"][P]
+>P : Symbol(P, Decl(substitutionTypeNoMergeOfAssignableType.ts, 9, 6))
+>E : Symbol(E, Decl(substitutionTypeNoMergeOfAssignableType.ts, 8, 13))
+>E : Symbol(E, Decl(substitutionTypeNoMergeOfAssignableType.ts, 8, 13))
+>P : Symbol(P, Decl(substitutionTypeNoMergeOfAssignableType.ts, 9, 6))
+
+ };
+ 
+ type Nodes<T = any> = {
+>Nodes : Symbol(Nodes, Decl(substitutionTypeNoMergeOfAssignableType.ts, 10, 3))
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 12, 12))
+
+     [P in keyof T]: T[P] extends Entity
+>P : Symbol(P, Decl(substitutionTypeNoMergeOfAssignableType.ts, 13, 6))
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 12, 12))
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 12, 12))
+>P : Symbol(P, Decl(substitutionTypeNoMergeOfAssignableType.ts, 13, 6))
+>Entity : Symbol(Entity, Decl(substitutionTypeNoMergeOfAssignableType.ts, 2, 2))
+
+         ? Fields<T[P]>
+>Fields : Symbol(Fields, Decl(substitutionTypeNoMergeOfAssignableType.ts, 6, 2))
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 12, 12))
+>P : Symbol(P, Decl(substitutionTypeNoMergeOfAssignableType.ts, 13, 6))
+
+         : T[P]
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 12, 12))
+>P : Symbol(P, Decl(substitutionTypeNoMergeOfAssignableType.ts, 13, 6))
+
+ };
+ 
+ function makeEntityStore<T extends Record<string, Entity>>(config: T): Nodes<T> {
+>makeEntityStore : Symbol(makeEntityStore, Decl(substitutionTypeNoMergeOfAssignableType.ts, 16, 3))
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 18, 26))
+>Record : Symbol(Record, Decl(lib.es5.d.ts, --, --))
+>Entity : Symbol(Entity, Decl(substitutionTypeNoMergeOfAssignableType.ts, 2, 2))
+>config : Symbol(config, Decl(substitutionTypeNoMergeOfAssignableType.ts, 18, 60))
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 18, 26))
+>Nodes : Symbol(Nodes, Decl(substitutionTypeNoMergeOfAssignableType.ts, 10, 3))
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 18, 26))
+
+     return {} as Nodes<T>
+>Nodes : Symbol(Nodes, Decl(substitutionTypeNoMergeOfAssignableType.ts, 10, 3))
+>T : Symbol(T, Decl(substitutionTypeNoMergeOfAssignableType.ts, 18, 26))
+ }
+ 
+ const myTest = makeEntityStore({ test: { fields: { id: {} } } });
+>myTest : Symbol(myTest, Decl(substitutionTypeNoMergeOfAssignableType.ts, 22, 6))
+>makeEntityStore : Symbol(makeEntityStore, Decl(substitutionTypeNoMergeOfAssignableType.ts, 16, 3))
+>test : Symbol(test, Decl(substitutionTypeNoMergeOfAssignableType.ts, 22, 33))
+>fields : Symbol(fields, Decl(substitutionTypeNoMergeOfAssignableType.ts, 22, 41))
+>id : Symbol(id, Decl(substitutionTypeNoMergeOfAssignableType.ts, 22, 51))
+
+ myTest.test
+>myTest.test : Symbol(test, Decl(substitutionTypeNoMergeOfAssignableType.ts, 22, 33))
+>myTest : Symbol(myTest, Decl(substitutionTypeNoMergeOfAssignableType.ts, 22, 6))
+>test : Symbol(test, Decl(substitutionTypeNoMergeOfAssignableType.ts, 22, 33))
+ 
diff --git a/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.types b/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.types
new file mode 100644
index 0000000000000..af1f239850c03
--- /dev/null
+++ b/tests/baselines/reference/substitutionTypeNoMergeOfAssignableType.types
@@ -0,0 +1,52 @@
+=== tests/cases/compiler/substitutionTypeNoMergeOfAssignableType.ts ===
+interface Entry {
+    comment?: string;
+>comment : string
+ }
+ 
+ interface Entity {
+     fields: {[key: string]: Entry};
+>fields : { [key: string]: Entry; }
+>key : string
+ }
+ 
+ type Fields<E extends Entity> = {
+>Fields : Fields<E>
+
+     [P in keyof E["fields"]]: E["fields"][P]
+ };
+ 
+ type Nodes<T = any> = {
+>Nodes : Nodes<T>
+
+     [P in keyof T]: T[P] extends Entity
+         ? Fields<T[P]>
+         : T[P]
+ };
+ 
+ function makeEntityStore<T extends Record<string, Entity>>(config: T): Nodes<T> {
+>makeEntityStore : <T extends Record<string, Entity>>(config: T) => Nodes<T>
+>config : T
+
+     return {} as Nodes<T>
+>{} as Nodes<T> : Nodes<T>
+>{} : {}
+ }
+ 
+ const myTest = makeEntityStore({ test: { fields: { id: {} } } });
+>myTest : Nodes<{ test: { fields: { id: {}; }; }; }>
+>makeEntityStore({ test: { fields: { id: {} } } }) : Nodes<{ test: { fields: { id: {}; }; }; }>
+>makeEntityStore : <T extends Record<string, Entity>>(config: T) => Nodes<T>
+>{ test: { fields: { id: {} } } } : { test: { fields: { id: {}; }; }; }
+>test : { fields: { id: {}; }; }
+>{ fields: { id: {} } } : { fields: { id: {}; }; }
+>fields : { id: {}; }
+>{ id: {} } : { id: {}; }
+>id : {}
+>{} : {}
+
+ myTest.test
+>myTest.test : Fields<{ fields: { id: {}; }; }>
+>myTest : Nodes<{ test: { fields: { id: {}; }; }; }>
+>test : Fields<{ fields: { id: {}; }; }>
+ 
diff --git a/tests/cases/compiler/substitutionTypeNoMergeOfAssignableType.ts b/tests/cases/compiler/substitutionTypeNoMergeOfAssignableType.ts
new file mode 100644
index 0000000000000..b919557d65520
--- /dev/null
+++ b/tests/cases/compiler/substitutionTypeNoMergeOfAssignableType.ts
@@ -0,0 +1,25 @@
+interface Entry {
+    comment?: string;
+ }
+ 
+ interface Entity {
+     fields: {[key: string]: Entry};
+ }
+ 
+ type Fields<E extends Entity> = {
+     [P in keyof E["fields"]]: E["fields"][P]
+ };
+ 
+ type Nodes<T = any> = {
+     [P in keyof T]: T[P] extends Entity
+         ? Fields<T[P]>
+         : T[P]
+ };
+ 
+ function makeEntityStore<T extends Record<string, Entity>>(config: T): Nodes<T> {
+     return {} as Nodes<T>
+ }
+ 
+ const myTest = makeEntityStore({ test: { fields: { id: {} } } });
+ myTest.test
+ 
\ No newline at end of file