diff --git a/src/eval.c b/src/eval.c
index 463c892..956f05c 100644
--- a/src/eval.c
+++ b/src/eval.c
@@ -2837,7 +2837,9 @@
 	    }
 	}
 	hi = hash_find(ht, varname);
-	if (!HASHITEM_EMPTY(hi))
+	if (HASHITEM_EMPTY(hi))
+	    hi = find_hi_in_scoped_ht(name, &varname, &ht);
+	if (hi != NULL && !HASHITEM_EMPTY(hi))
 	{
 	    di = HI2DI(hi);
 	    if (var_check_fixed(di->di_flags, name, FALSE)
diff --git a/src/proto/userfunc.pro b/src/proto/userfunc.pro
index e503bcd..42c5883 100644
--- a/src/proto/userfunc.pro
+++ b/src/proto/userfunc.pro
@@ -46,6 +46,7 @@
 void restore_current_funccal(void *f);
 void list_func_vars(int *first);
 dict_T *get_current_funccal_dict(hashtab_T *ht);
+hashitem_T *find_hi_in_scoped_ht(char_u *name, char_u **varname, hashtab_T **pht);
 dictitem_T *find_var_in_scoped_ht(char_u *name, char_u **varname, int no_autoload);
 int set_ref_in_previous_funccal(int copyID);
 int set_ref_in_call_stack(int copyID);
diff --git a/src/testdir/test_lambda.vim b/src/testdir/test_lambda.vim
index 02face8..9eb34e4 100644
--- a/src/testdir/test_lambda.vim
+++ b/src/testdir/test_lambda.vim
@@ -1,3 +1,5 @@
+" Test for lambda and closure
+
 function! Test_lambda_with_filter()
   let s:x = 2
   call assert_equal([2, 3], filter([1, 2, 3], {i, v -> v >= s:x}))
@@ -100,7 +102,7 @@
   call assert_equal('no', l:F[1]())
 endfunction
 
-function! Test_lambda_closure()
+function! Test_lambda_closure_counter()
   function! s:foo()
     let x = 0
     return {-> [execute("let x += 1"), x][-1]}
@@ -209,3 +211,35 @@
   let Fact = {f -> {x -> x == 0 ? 1 : x * f(x - 1)}}
   call assert_equal(120, Z(Fact)(5))
 endfunction
+
+function! Test_closure_counter()
+  function! s:foo()
+    let x = 0
+    function! s:bar() closure
+      let x += 1
+      return x
+    endfunction
+    return function('s:bar')
+  endfunction
+
+  let l:F = s:foo()
+  call test_garbagecollect_now()
+  call assert_equal(1, l:F())
+  call assert_equal(2, l:F())
+  call assert_equal(3, l:F())
+  call assert_equal(4, l:F())
+endfunction
+
+function! Test_closure_unlet()
+  function! s:foo()
+    let x = 1
+    function! s:bar() closure
+      unlet x
+    endfunction
+    call s:bar()
+    return l:
+  endfunction
+
+  call assert_false(has_key(s:foo(), 'x'))
+  call test_garbagecollect_now()
+endfunction
diff --git a/src/userfunc.c b/src/userfunc.c
index caa0cfd..0c6c613 100644
--- a/src/userfunc.c
+++ b/src/userfunc.c
@@ -59,6 +59,7 @@
 #define FC_ABORT    1		/* abort function on error */
 #define FC_RANGE    2		/* function accepts range */
 #define FC_DICT	    4		/* Dict function, uses "self" */
+#define FC_CLOSURE  8		/* closure, uses outer scope variables */
 
 /* From user function to hashitem and back. */
 #define UF2HIKEY(fp) ((fp)->uf_name)
@@ -312,7 +313,7 @@
 
     if (evaluate)
     {
-	int	len;
+	int	len, flags = 0;
 	char_u	*p;
 
 	sprintf((char*)name, "<lambda>%d", ++lambda_no);
@@ -341,6 +342,7 @@
 	fp->uf_lines = newlines;
 	if (current_funccal != NULL && eval_lavars)
 	{
+	    flags |= FC_CLOSURE;
 	    fp->uf_scoped = current_funccal;
 	    current_funccal->fc_refcount++;
 	    if (ga_grow(&current_funccal->fc_funcs, 1) == FAIL)
@@ -361,7 +363,7 @@
 	    func_do_profile(fp);
 #endif
 	fp->uf_varargs = TRUE;
-	fp->uf_flags = 0;
+	fp->uf_flags = flags;
 	fp->uf_calls = 0;
 	fp->uf_script_ID = current_SID;
 
@@ -1487,6 +1489,8 @@
 	MSG_PUTS(" range");
     if (fp->uf_flags & FC_DICT)
 	MSG_PUTS(" dict");
+    if (fp->uf_flags & FC_CLOSURE)
+	MSG_PUTS(" closure");
     msg_clr_eos();
     if (p_verbose > 0)
 	last_set_msg(fp->uf_script_ID);
@@ -1948,7 +1952,7 @@
     if (get_function_args(&p, ')', &newargs, &varargs, eap->skip) == FAIL)
 	goto errret_2;
 
-    /* find extra arguments "range", "dict" and "abort" */
+    /* find extra arguments "range", "dict", "abort" and "closure" */
     for (;;)
     {
 	p = skipwhite(p);
@@ -1967,6 +1971,11 @@
 	    flags |= FC_ABORT;
 	    p += 5;
 	}
+	else if (STRNCMP(p, "closure", 7) == 0)
+	{
+	    flags |= FC_CLOSURE;
+	    p += 7;
+	}
 	else
 	    break;
     }
@@ -2299,7 +2308,25 @@
     }
     fp->uf_args = newargs;
     fp->uf_lines = newlines;
-    fp->uf_scoped = NULL;
+    if ((flags & FC_CLOSURE) != 0)
+    {
+	if (current_funccal == NULL)
+	{
+	    emsg_funcname(N_("E932 Closure function should not be at top level: %s"),
+		    name);
+	    goto erret;
+	}
+	fp->uf_scoped = current_funccal;
+	current_funccal->fc_refcount++;
+	if (ga_grow(&current_funccal->fc_funcs, 1) == FAIL)
+	    goto erret;
+	((ufunc_T **)current_funccal->fc_funcs.ga_data)
+				[current_funccal->fc_funcs.ga_len++] = fp;
+	func_ref(current_funccal->func->uf_name);
+    }
+    else
+	fp->uf_scoped = NULL;
+
 #ifdef FEAT_PROFILE
     fp->uf_tml_count = NULL;
     fp->uf_tml_total = NULL;
@@ -3536,6 +3563,42 @@
 }
 
 /*
+ * Search hashitem in parent scope.
+ */
+    hashitem_T *
+find_hi_in_scoped_ht(char_u *name, char_u **varname, hashtab_T **pht)
+{
+    funccall_T	*old_current_funccal = current_funccal;
+    hashtab_T	*ht;
+    hashitem_T	*hi = NULL;
+
+    if (current_funccal == NULL || current_funccal->func->uf_scoped == NULL)
+      return NULL;
+
+    /* Search in parent scope which is possible to reference from lambda */
+    current_funccal = current_funccal->func->uf_scoped;
+    while (current_funccal)
+    {
+      ht = find_var_ht(name, varname);
+      if (ht != NULL && **varname != NUL)
+      {
+	  hi = hash_find(ht, *varname);
+	  if (!HASHITEM_EMPTY(hi))
+	  {
+	      *pht = ht;
+	      break;
+	  }
+      }
+      if (current_funccal == current_funccal->func->uf_scoped)
+	  break;
+      current_funccal = current_funccal->func->uf_scoped;
+    }
+    current_funccal = old_current_funccal;
+
+    return hi;
+}
+
+/*
  * Search variable in parent scope.
  */
     dictitem_T *
diff --git a/src/version.c b/src/version.c
index 865ac92..7e8ca16 100644
--- a/src/version.c
+++ b/src/version.c
@@ -759,6 +759,8 @@
 static int included_patches[] =
 {   /* Add new patch number below this line */
 /**/
+    2120,
+/**/
     2119,
 /**/
     2118,