diff --git a/compiler/src/dotty/tools/dotc/transform/ExplicitOuter.scala b/compiler/src/dotty/tools/dotc/transform/ExplicitOuter.scala
index 91edf0feea79..8b13633e6125 100644
--- a/compiler/src/dotty/tools/dotc/transform/ExplicitOuter.scala
+++ b/compiler/src/dotty/tools/dotc/transform/ExplicitOuter.scala
@@ -217,11 +217,13 @@ object ExplicitOuter {
      cls.info.parents.exists(parent => // needs outer to potentially pass along to parent
        needsOuterIfReferenced(parent.classSymbol.asClass)))
 
-  /** Class is always instantiated in the compilation unit where it is defined */
+  /** Class is only instantiated in the compilation unit where it is defined */
   private def hasLocalInstantiation(cls: ClassSymbol)(using Context): Boolean =
     // Modules are normally locally instantiated, except if they are declared in a trait,
     // in which case they will be instantiated in the classes that mix in the trait.
-    cls.owner.isTerm || cls.is(Private, butNot = Module) || (cls.is(Module) && !cls.owner.is(Trait))
+    cls.owner.ownersIterator.takeWhile(!_.isStatic).exists(_.isTerm)
+    || cls.is(Private, butNot = Module)
+    || cls.is(Module) && !cls.owner.is(Trait)
 
   /** The outer parameter accessor of cass `cls` */
   private def outerParamAccessor(cls: ClassSymbol)(using Context): TermSymbol =
diff --git a/tests/run/i11367.check b/tests/run/i11367.check
new file mode 100644
index 000000000000..f7b8bc31acc6
--- /dev/null
+++ b/tests/run/i11367.check
@@ -0,0 +1 @@
+class C$G has outer fields
diff --git a/tests/run/i11367.scala b/tests/run/i11367.scala
new file mode 100644
index 000000000000..e88a9020dec4
--- /dev/null
+++ b/tests/run/i11367.scala
@@ -0,0 +1,18 @@
+trait NoOuter:
+  val outerFields = getClass.getDeclaredFields.filter(_.getName.contains("$outer"))
+  if outerFields.nonEmpty then println(s"$getClass has outer fields")
+
+class C extends NoOuter:
+  def foo =
+    class D extends NoOuter:
+      class E extends NoOuter
+    class F extends NoOuter
+    val d = D()
+    d.E()
+    F()
+  class G extends NoOuter
+
+@main def Test =
+  val c = C()
+  c.foo
+  c.G()