diff --git a/src/compiler/builder.ts b/src/compiler/builder.ts
index 0fe147def8c..2de77fa5545 100644
--- a/src/compiler/builder.ts
+++ b/src/compiler/builder.ts
@@ -201,12 +201,13 @@ namespace ts {
         }
 
         Debug.assert(!!state.currentAffectedFilesExportedModulesMap);
+        const seenFileAndExportsOfFile = createMap<true>();
         // Go through exported modules from cache first
         // If exported modules has path, all files referencing file exported from are affected
         if (forEachEntry(state.currentAffectedFilesExportedModulesMap!, (exportedModules, exportedFromPath) =>
             exportedModules &&
             exportedModules.has(affectedFile.path) &&
-            removeSemanticDiagnosticsOfFilesReferencingPath(state, exportedFromPath as Path)
+            removeSemanticDiagnosticsOfFilesReferencingPath(state, exportedFromPath as Path, seenFileAndExportsOfFile)
         )) {
             return;
         }
@@ -215,7 +216,7 @@ namespace ts {
         forEachEntry(state.exportedModulesMap, (exportedModules, exportedFromPath) =>
             !state.currentAffectedFilesExportedModulesMap!.has(exportedFromPath) && // If we already iterated this through cache, ignore it
             exportedModules.has(affectedFile.path) &&
-            removeSemanticDiagnosticsOfFilesReferencingPath(state, exportedFromPath as Path)
+            removeSemanticDiagnosticsOfFilesReferencingPath(state, exportedFromPath as Path, seenFileAndExportsOfFile)
         );
     }
 
@@ -223,16 +224,20 @@ namespace ts {
      * removes the semantic diagnostics of files referencing referencedPath and
      * returns true if there are no more semantic diagnostics from old state
      */
-    function removeSemanticDiagnosticsOfFilesReferencingPath(state: BuilderProgramState, referencedPath: Path) {
+    function removeSemanticDiagnosticsOfFilesReferencingPath(state: BuilderProgramState, referencedPath: Path, seenFileAndExportsOfFile: Map<true>) {
         return forEachEntry(state.referencedMap!, (referencesInFile, filePath) =>
-            referencesInFile.has(referencedPath) && removeSemanticDiagnosticsOfFileAndExportsOfFile(state, filePath as Path)
+            referencesInFile.has(referencedPath) && removeSemanticDiagnosticsOfFileAndExportsOfFile(state, filePath as Path, seenFileAndExportsOfFile)
         );
     }
 
     /**
      * Removes semantic diagnostics of file and anything that exports this file
      */
-    function removeSemanticDiagnosticsOfFileAndExportsOfFile(state: BuilderProgramState, filePath: Path): boolean {
+    function removeSemanticDiagnosticsOfFileAndExportsOfFile(state: BuilderProgramState, filePath: Path, seenFileAndExportsOfFile: Map<true>): boolean {
+        if (!addToSeen(seenFileAndExportsOfFile, filePath)) {
+            return false;
+        }
+
         if (removeSemanticDiagnosticsOf(state, filePath)) {
             // If there are no more diagnostics from old cache, done
             return true;
@@ -244,7 +249,7 @@ namespace ts {
         if (forEachEntry(state.currentAffectedFilesExportedModulesMap!, (exportedModules, exportedFromPath) =>
             exportedModules &&
             exportedModules.has(filePath) &&
-            removeSemanticDiagnosticsOfFileAndExportsOfFile(state, exportedFromPath as Path)
+            removeSemanticDiagnosticsOfFileAndExportsOfFile(state, exportedFromPath as Path, seenFileAndExportsOfFile)
         )) {
             return true;
         }
@@ -253,7 +258,7 @@ namespace ts {
         return !!forEachEntry(state.exportedModulesMap!, (exportedModules, exportedFromPath) =>
             !state.currentAffectedFilesExportedModulesMap!.has(exportedFromPath) && // If we already iterated this through cache, ignore it
             exportedModules.has(filePath) &&
-            removeSemanticDiagnosticsOfFileAndExportsOfFile(state, exportedFromPath as Path)
+            removeSemanticDiagnosticsOfFileAndExportsOfFile(state, exportedFromPath as Path, seenFileAndExportsOfFile)
         );
     }
 
diff --git a/src/testRunner/unittests/tscWatchMode.ts b/src/testRunner/unittests/tscWatchMode.ts
index 6280823d860..f77b4bce0eb 100644
--- a/src/testRunner/unittests/tscWatchMode.ts
+++ b/src/testRunner/unittests/tscWatchMode.ts
@@ -1473,7 +1473,7 @@ foo().hello`
             checkOutputErrorsIncremental(host, emptyArray);
         });
 
-        it("updates errors when file transitively exported file changes", () => {
+        describe("updates errors when file transitively exported file changes", () => {
             const projectLocation = "/user/username/projects/myproject";
             const config: File = {
                 path: `${projectLocation}/tsconfig.json`,
@@ -1521,19 +1521,48 @@ export class Data {
     title: string;
 }`
             };
-            const filesWithoutConfig = [libFile, app, lib2Public, lib2Data, lib1Public, lib1ToolsPublic, lib1ToolsInterface];
-            const files = [config, ...filesWithoutConfig];
-            const host = createWatchedSystem(files, { currentDirectory: projectLocation });
-            const watch = createWatchOfConfigFile(config.path, host);
-            checkProgramActualFiles(watch(), filesWithoutConfig.map(f => f.path));
-            checkOutputErrorsInitial(host, emptyArray);
 
-            host.writeFile(lib1ToolsInterface.path, lib1ToolsInterface.content.replace("title", "title2"));
-            host.checkTimeoutQueueLengthAndRun(1);
-            checkProgramActualFiles(watch(), filesWithoutConfig.map(f => f.path));
-            checkOutputErrorsIncremental(host, [
-                "lib2/data.ts(5,13): error TS2322: Type '{ title: string; }' is not assignable to type 'ITest'.\n  Object literal may only specify known properties, but 'title' does not exist in type 'ITest'. Did you mean to write 'title2'?\n"
-            ]);
+            function verifyTransitiveExports(filesWithoutConfig: ReadonlyArray<File>) {
+                const files = [config, ...filesWithoutConfig];
+                const host = createWatchedSystem(files, { currentDirectory: projectLocation });
+                const watch = createWatchOfConfigFile(config.path, host);
+                checkProgramActualFiles(watch(), filesWithoutConfig.map(f => f.path));
+                checkOutputErrorsInitial(host, emptyArray);
+
+                host.writeFile(lib1ToolsInterface.path, lib1ToolsInterface.content.replace("title", "title2"));
+                host.checkTimeoutQueueLengthAndRun(1);
+                checkProgramActualFiles(watch(), filesWithoutConfig.map(f => f.path));
+                checkOutputErrorsIncremental(host, [
+                    "lib2/data.ts(5,13): error TS2322: Type '{ title: string; }' is not assignable to type 'ITest'.\n  Object literal may only specify known properties, but 'title' does not exist in type 'ITest'. Did you mean to write 'title2'?\n"
+                ]);
+
+            }
+            it("when there are no circular import and exports", () => {
+                verifyTransitiveExports([libFile, app, lib2Public, lib2Data, lib1Public, lib1ToolsPublic, lib1ToolsInterface]);
+            });
+
+            it("when there are circular import and exports", () => {
+                const lib2Data: File = {
+                    path: `${projectLocation}/lib2/data.ts`,
+                    content: `import { ITest } from "lib1/public"; import { Data2 } from "./data2";
+export class Data {
+    public dat?: Data2; public test() {
+        const result: ITest = {
+            title: "title"
+        }
+        return result;
+    }
+}`
+                };
+                const lib2Data2: File = {
+                    path: `${projectLocation}/lib2/data2.ts`,
+                    content: `import { Data } from "./data";
+export class Data2 {
+    public dat?: Data;
+}`
+                };
+                verifyTransitiveExports([libFile, app, lib2Public, lib2Data, lib2Data2, lib1Public, lib1ToolsPublic, lib1ToolsInterface]);
+            });
         });
     });