diff --git a/langkit/lkt_lowering.py b/langkit/lkt_lowering.py
index db1cd9b16..e3fcbd28d 100644
--- a/langkit/lkt_lowering.py
+++ b/langkit/lkt_lowering.py
@@ -21,7 +21,7 @@
 from langkit.compiled_types import (
     ASTNodeType, AbstractNodeData, Argument, CompiledType, CompiledTypeOrDefer,
     CompiledTypeRepo, EnumNodeAlternative, EnumType, Field, StructType, T,
-    TypeRepo, UserField, resolve_type
+    TypeRepo, UserField
 )
 from langkit.diagnostics import (
     DiagnosticError, Location, check_source_language, diagnostic_context, error
@@ -1354,8 +1354,9 @@ def lower_type_decl(self, decl: L.TypeDecl) -> CompiledType:
             try:
                 t = self.compiled_types[decl]
             except KeyError:
-                # The type is not lowered yet: let's do it
-                pass
+                # The type is not lowered yet: let's do it. Add the sentinel to
+                # reject type inheritance loop during recursion.
+                self.compiled_types[decl] = None
             else:
                 if t is None:
                     error('Type inheritance loop detected')
diff --git a/testsuite/tests/grammar/invalid_derivation_loop/test.lkt b/testsuite/tests/grammar/invalid_derivation_loop/test.lkt
new file mode 100644
index 000000000..f846d26b1
--- /dev/null
+++ b/testsuite/tests/grammar/invalid_derivation_loop/test.lkt
@@ -0,0 +1,15 @@
+import lexer_example
+
+@with_lexer(foo_lexer)
+grammar foo_grammar {
+    @main_rule main_rule <- or(N1("example") | N2("null"))
+}
+
+@abstract class FooNode implements Node[FooNode] {
+}
+
+class N1 : N2 {
+}
+
+class N2 : N1 {
+}
diff --git a/testsuite/tests/grammar/invalid_derivation_loop/test.out b/testsuite/tests/grammar/invalid_derivation_loop/test.out
new file mode 100644
index 000000000..05fce0573
--- /dev/null
+++ b/testsuite/tests/grammar/invalid_derivation_loop/test.out
@@ -0,0 +1,7 @@
+== test.lkt ==
+test.lkt:11:1: error: Type inheritance loop detected
+11 | class N1 : N2 {
+   | ^
+
+
+Done
diff --git a/testsuite/tests/grammar/invalid_derivation_loop/test.yaml b/testsuite/tests/grammar/invalid_derivation_loop/test.yaml
new file mode 100644
index 000000000..4a499fbd3
--- /dev/null
+++ b/testsuite/tests/grammar/invalid_derivation_loop/test.yaml
@@ -0,0 +1 @@
+driver: lkt_compile