diff --git a/src/libjsparser/parser.c b/src/libjsparser/parser.c
index 40b7598e4..db7d0925f 100644
--- a/src/libjsparser/parser.c
+++ b/src/libjsparser/parser.c
@@ -3297,6 +3297,11 @@ parse_statement (void)
     parse_variable_declaration_list (NULL);
     goto cleanup;
   }
+  if (is_keyword (KW_FUNCTION))
+  {
+    parse_function_declaration ();
+    goto cleanup;
+  }
   if (token_is (TOK_SEMICOLON))
   {
     goto cleanup;
diff --git a/tests/jerry/func_decl.js b/tests/jerry/func_decl.js
new file mode 100644
index 000000000..e3d725575
--- /dev/null
+++ b/tests/jerry/func_decl.js
@@ -0,0 +1,25 @@
+// Copyright 2014 Samsung Electronics Co., Ltd.
+//
+// Licensed under the Apache License, Version 2.0 (the "License");
+// you may not use this file except in compliance with the License.
+// You may obtain a copy of the License at
+//
+//     http://www.apache.org/licenses/LICENSE-2.0
+//
+// Unless required by applicable law or agreed to in writing, software
+// distributed under the License is distributed on an "AS IS" BASIS
+// WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+// See the License for the specific language governing permissions and
+// limitations under the License.
+
+function f() {
+    return 'foo';
+}
+assert ((function() {
+    if (1 === 0) {
+        function f() {
+            return 'bar';
+        }
+    }
+    return f();
+})() === 'bar');