diff --git a/src/testdir/test_vim9_func.vim b/src/testdir/test_vim9_func.vim
index 8ac05d4..e8df8a7 100644
--- a/src/testdir/test_vim9_func.vim
+++ b/src/testdir/test_vim9_func.vim
@@ -2352,6 +2352,42 @@
   assert_match('def <lambda>\d\+(_: any): number\n1  return 0\n   enddef', body)
 enddef
 
+def Test_lamba_block_variable()
+  var lines =<< trim END
+      vim9script
+      var flist: list<func>
+      for i in range(10)
+          var inloop = i
+          flist[i] = () => inloop
+      endfor
+  END
+  CheckScriptSuccess(lines)
+
+  lines =<< trim END
+      vim9script
+      if true
+        var outloop = 5
+        var flist: list<func>
+        for i in range(10)
+          flist[i] = () => outloop
+        endfor
+      endif
+  END
+  CheckScriptSuccess(lines)
+
+  lines =<< trim END
+      vim9script
+      if true
+        var outloop = 5
+      endif
+      var flist: list<func>
+      for i in range(10)
+        flist[i] = () => outloop
+      endfor
+  END
+  CheckScriptFailure(lines, 'E1001: Variable not found: outloop', 1)
+enddef
+
 def Test_legacy_lambda()
   legacy echo {x -> 'hello ' .. x}('foo')
 
diff --git a/src/version.c b/src/version.c
index 64622c3..76c6db9 100644
--- a/src/version.c
+++ b/src/version.c
@@ -756,6 +756,8 @@
 static int included_patches[] =
 {   /* Add new patch number below this line */
 /**/
+    3209,
+/**/
     3208,
 /**/
     3207,
diff --git a/src/vim9compile.c b/src/vim9compile.c
index 06098d8..5ec3b3d 100644
--- a/src/vim9compile.c
+++ b/src/vim9compile.c
@@ -339,6 +339,7 @@
     hashitem_T	    *hi;
     int		    cc;
     sallvar_T	    *sav;
+    sallvar_T	    *found_sav;
     ufunc_T	    *ufunc;
 
     // Find the list of all script variables with the right name.
@@ -361,6 +362,7 @@
     // Go over the variables with this name and find one that was visible
     // from the function.
     ufunc = cctx->ctx_ufunc;
+    found_sav = sav;
     while (sav != NULL)
     {
 	int idx;
@@ -373,7 +375,8 @@
 	sav = sav->sav_next;
     }
 
-    return NULL;
+    // Not found, assume variable at script level was visible.
+    return found_sav;
 }
 
 /*