diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index 8983725d206..a77da719e52 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -8128,6 +8128,9 @@ module ts {
         }
 
         function checkBreakOrContinueStatement(node: BreakOrContinueStatement) {
+            // Grammar checking
+            checkGrammarBreakOrContinueStatement(node);
+
             // TODO: Check that target label is valid
         }
 
@@ -10311,6 +10314,74 @@ module ts {
             }
         }
 
+        function isIterationStatement(node: Node, lookInLabeledStatements: boolean): boolean {
+            switch (node.kind) {
+                case SyntaxKind.ForStatement:
+                case SyntaxKind.ForInStatement:
+                case SyntaxKind.DoStatement:
+                case SyntaxKind.WhileStatement:
+                    return true;
+                case SyntaxKind.LabeledStatement:
+                    return lookInLabeledStatements && isIterationStatement((<LabeledStatement>node).statement, lookInLabeledStatements);
+            }
+
+            return false;
+        }
+
+        function checkGrammarBreakOrContinueStatement(node: BreakOrContinueStatement): boolean {
+            var current: Node = node;
+            while (current) {
+                if (isAnyFunction(current)) {
+                    return grammarErrorOnNode(node, Diagnostics.Jump_target_cannot_cross_function_boundary);
+                }
+
+                switch (current.kind) {
+                    case SyntaxKind.LabeledStatement:
+                        if (node.label && (<LabeledStatement>current).label.text === node.label.text) {
+                            // found matching label - verify that label usage is correct
+                            // continue can only target labels that are on iteration statements
+                            var isMisplacedContinueLabel = node.kind === SyntaxKind.ContinueStatement
+                                && !isIterationStatement((<LabeledStatement>current).statement, /*lookInLabeledStatement*/ true);
+
+                            if (isMisplacedContinueLabel) {
+                                return grammarErrorOnNode(node, Diagnostics.A_continue_statement_can_only_jump_to_a_label_of_an_enclosing_iteration_statement);
+                            }
+
+                            return false;
+                        }
+                        break;
+                    case SyntaxKind.SwitchStatement:
+                        if (node.kind === SyntaxKind.BreakStatement && !node.label) {
+                            // unlabeled break within switch statement - ok
+                            return false;
+                        }
+                        break;
+                    default:
+                        if (isIterationStatement(current, /*lookInLabeledStatement*/ false) && !node.label) {
+                            // unlabeled break or continue within iteration statement - ok
+                            return false;
+                        }
+                        break;
+                }
+
+                current = current.parent;
+            }
+
+            if (node.label) {
+                var message = node.kind === SyntaxKind.BreakStatement
+                    ? Diagnostics.A_break_statement_can_only_jump_to_a_label_of_an_enclosing_statement
+                    : Diagnostics.A_continue_statement_can_only_jump_to_a_label_of_an_enclosing_iteration_statement;
+
+                return grammarErrorOnNode(node, message)
+            }
+            else {
+                var message = node.kind === SyntaxKind.BreakStatement
+                    ? Diagnostics.A_break_statement_can_only_be_used_within_an_enclosing_iteration_or_switch_statement
+                    : Diagnostics.A_continue_statement_can_only_be_used_within_an_enclosing_iteration_statement;
+                return grammarErrorOnNode(node, message)
+            }
+        }
+
         function hasParseDiagnostics(sourceFile: SourceFile): boolean {
             return sourceFile.parseDiagnostics.length > 0;
         }
diff --git a/src/compiler/parser.ts b/src/compiler/parser.ts
index 2763340551a..b2fbe11fcb5 100644
--- a/src/compiler/parser.ts
+++ b/src/compiler/parser.ts
@@ -4626,9 +4626,9 @@ module ts {
         function checkNode(node: Node, nodeKind: SyntaxKind): boolean {
             // Now do node specific checks.
             switch (nodeKind) {
-                case SyntaxKind.BreakStatement:
-                case SyntaxKind.ContinueStatement:
-                    return checkBreakOrContinueStatement(<BreakOrContinueStatement>node);
+                //case SyntaxKind.BreakStatement:
+                //case SyntaxKind.ContinueStatement:
+                    //return checkBreakOrContinueStatement(<BreakOrContinueStatement>node);
                 //case SyntaxKind.CallExpression:
                 //case SyntaxKind.NewExpression:
                     //return checkCallOrNewExpression(<NewExpression>node);
diff --git a/tests/baselines/reference/invalidDoWhileBreakStatements.errors.txt b/tests/baselines/reference/invalidDoWhileBreakStatements.errors.txt
index 65fd55b763b..6113009e598 100644
--- a/tests/baselines/reference/invalidDoWhileBreakStatements.errors.txt
+++ b/tests/baselines/reference/invalidDoWhileBreakStatements.errors.txt
@@ -1,9 +1,9 @@
 tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts(4,1): error TS1105: A 'break' statement can only be used within an enclosing iteration or switch statement.
 tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts(8,4): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
-tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
-tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts(27,5): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
 tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts(37,5): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
+tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
+tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 
 
 ==== tests/cases/conformance/statements/breakStatements/invalidDoWhileBreakStatements.ts (6 errors) ====
diff --git a/tests/baselines/reference/invalidDoWhileContinueStatements.errors.txt b/tests/baselines/reference/invalidDoWhileContinueStatements.errors.txt
index e9643394d12..c89f9c01055 100644
--- a/tests/baselines/reference/invalidDoWhileContinueStatements.errors.txt
+++ b/tests/baselines/reference/invalidDoWhileContinueStatements.errors.txt
@@ -1,9 +1,9 @@
 tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts(4,1): error TS1104: A 'continue' statement can only be used within an enclosing iteration statement.
 tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts(8,4): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
-tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
-tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts(27,5): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
 tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts(37,5): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
+tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
+tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 
 
 ==== tests/cases/conformance/statements/continueStatements/invalidDoWhileContinueStatements.ts (6 errors) ====
diff --git a/tests/baselines/reference/invalidForBreakStatements.errors.txt b/tests/baselines/reference/invalidForBreakStatements.errors.txt
index 50e4013c0ea..c63c97dcf69 100644
--- a/tests/baselines/reference/invalidForBreakStatements.errors.txt
+++ b/tests/baselines/reference/invalidForBreakStatements.errors.txt
@@ -1,9 +1,9 @@
 tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts(4,1): error TS1105: A 'break' statement can only be used within an enclosing iteration or switch statement.
 tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts(8,9): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
-tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
-tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts(27,5): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
 tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts(36,5): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
+tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
+tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 
 
 ==== tests/cases/conformance/statements/breakStatements/invalidForBreakStatements.ts (6 errors) ====
diff --git a/tests/baselines/reference/invalidForContinueStatements.errors.txt b/tests/baselines/reference/invalidForContinueStatements.errors.txt
index 3af47370df1..459c2c5efa7 100644
--- a/tests/baselines/reference/invalidForContinueStatements.errors.txt
+++ b/tests/baselines/reference/invalidForContinueStatements.errors.txt
@@ -1,9 +1,9 @@
 tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts(4,1): error TS1104: A 'continue' statement can only be used within an enclosing iteration statement.
 tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts(8,9): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
-tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
-tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts(27,5): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
 tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts(36,5): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
+tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
+tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 
 
 ==== tests/cases/conformance/statements/continueStatements/invalidForContinueStatements.ts (6 errors) ====
diff --git a/tests/baselines/reference/invalidForInBreakStatements.errors.txt b/tests/baselines/reference/invalidForInBreakStatements.errors.txt
index d83304ab1c6..c12babd3a3a 100644
--- a/tests/baselines/reference/invalidForInBreakStatements.errors.txt
+++ b/tests/baselines/reference/invalidForInBreakStatements.errors.txt
@@ -1,9 +1,9 @@
 tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts(4,1): error TS1105: A 'break' statement can only be used within an enclosing iteration or switch statement.
 tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts(8,19): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
-tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
-tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts(27,5): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
 tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts(37,5): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
+tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
+tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 
 
 ==== tests/cases/conformance/statements/breakStatements/invalidForInBreakStatements.ts (6 errors) ====
diff --git a/tests/baselines/reference/invalidForInContinueStatements.errors.txt b/tests/baselines/reference/invalidForInContinueStatements.errors.txt
index 7353a22d9cd..ebd96fd6e46 100644
--- a/tests/baselines/reference/invalidForInContinueStatements.errors.txt
+++ b/tests/baselines/reference/invalidForInContinueStatements.errors.txt
@@ -1,9 +1,9 @@
 tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts(4,1): error TS1104: A 'continue' statement can only be used within an enclosing iteration statement.
 tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts(8,19): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
-tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
-tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts(27,5): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
 tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts(37,5): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
+tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
+tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 
 
 ==== tests/cases/conformance/statements/continueStatements/invalidForInContinueStatements.ts (6 errors) ====
diff --git a/tests/baselines/reference/invalidWhileBreakStatements.errors.txt b/tests/baselines/reference/invalidWhileBreakStatements.errors.txt
index 54adc2856d7..1ed29772d7b 100644
--- a/tests/baselines/reference/invalidWhileBreakStatements.errors.txt
+++ b/tests/baselines/reference/invalidWhileBreakStatements.errors.txt
@@ -1,9 +1,9 @@
 tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts(4,1): error TS1105: A 'break' statement can only be used within an enclosing iteration or switch statement.
 tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts(8,14): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
-tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
-tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts(27,5): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
 tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts(37,5): error TS1116: A 'break' statement can only jump to a label of an enclosing statement.
+tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
+tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 
 
 ==== tests/cases/conformance/statements/breakStatements/invalidWhileBreakStatements.ts (6 errors) ====
diff --git a/tests/baselines/reference/invalidWhileContinueStatements.errors.txt b/tests/baselines/reference/invalidWhileContinueStatements.errors.txt
index 462b244efd4..ac658dbc944 100644
--- a/tests/baselines/reference/invalidWhileContinueStatements.errors.txt
+++ b/tests/baselines/reference/invalidWhileContinueStatements.errors.txt
@@ -1,9 +1,9 @@
 tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts(4,1): error TS1104: A 'continue' statement can only be used within an enclosing iteration statement.
 tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts(8,14): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
-tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
-tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts(27,5): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
 tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts(37,5): error TS1115: A 'continue' statement can only jump to a label of an enclosing iteration statement.
+tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts(14,9): error TS1107: Jump target cannot cross function boundary.
+tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts(21,9): error TS1107: Jump target cannot cross function boundary.
 
 
 ==== tests/cases/conformance/statements/continueStatements/invalidWhileContinueStatements.ts (6 errors) ====