diff --git a/effekt/shared/src/main/scala/effekt/Typer.scala b/effekt/shared/src/main/scala/effekt/Typer.scala
index ef161e147..77558ef38 100644
--- a/effekt/shared/src/main/scala/effekt/Typer.scala
+++ b/effekt/shared/src/main/scala/effekt/Typer.scala
@@ -1198,10 +1198,10 @@ object Typer extends Phase[NameResolved, Typechecked] {
       Context.abort(s"Wrong number of type arguments, given ${targs.size}, but ${name} expects ${funTpe.tparams.size}.")
 
     if (vargs.size != funTpe.vparams.size)
-      Context.error(s"Wrong number of value arguments, given ${vargs.size}, but ${name} expects ${funTpe.vparams.size}.")
+      Context.abort(s"Wrong number of value arguments, given ${vargs.size}, but ${name} expects ${funTpe.vparams.size}.")
 
     if (bargs.size != funTpe.bparams.size)
-      Context.error(s"Wrong number of block arguments, given ${bargs.size}, but ${name} expects ${funTpe.bparams.size}.")
+      Context.abort(s"Wrong number of block arguments, given ${bargs.size}, but ${name} expects ${funTpe.bparams.size}.")
 
     val callsite = currentCapture
 
@@ -1222,7 +1222,16 @@ object Typer extends Phase[NameResolved, Typechecked] {
       effs = effs ++ eff
     }
 
-    (bps zip bargs zip captArgs) foreach { case ((tpe, expr), capt) =>
+    // To improve inference, we first type check block arguments that DO NOT subtract effects,
+    // since those need to be fully known.
+
+    val (withoutEffects, withEffects) = (bps zip (bargs zip captArgs)).partitionMap {
+      // TODO refine and check that eff.args refers to (inferred) type arguments of this application (`typeArgs`)
+      case (tpe : FunctionType, rest) if tpe.effects.exists { eff => eff.args.nonEmpty } => Right((tpe, rest))
+      case (tpe, rest) => Left((tpe, rest))
+    }
+
+    (withoutEffects ++ withEffects) foreach { case (tpe, (expr, capt)) =>
       flowsInto(capt, callsite)
       // capture of block <: ?C
       flowingInto(capt) {
diff --git a/examples/pos/issue661.check b/examples/pos/issue661.check
new file mode 100644
index 000000000..dcf37cd5e
--- /dev/null
+++ b/examples/pos/issue661.check
@@ -0,0 +1,3 @@
+2
+3
+4
diff --git a/examples/pos/issue661.effekt b/examples/pos/issue661.effekt
new file mode 100644
index 000000000..961158e4e
--- /dev/null
+++ b/examples/pos/issue661.effekt
@@ -0,0 +1,21 @@
+interface Iter[T] {
+  def yield(value: T): Unit
+}
+
+def iter[T](self: List[T]): Unit / {Iter[T]} =
+  self match {
+    case Cons(head, tail) => do yield(head); iter(tail)
+    case Nil() => ()
+  }
+
+def my_map[T, U] {action: () => Unit / {Iter[T]}} {f: T => U}: Unit / {Iter[U]} =
+  try action()
+  with Iter[T] {
+    def yield(value) = { do yield(f(value)); resume(()) }
+  }
+
+def main() =
+  try my_map { iter([1, 2, 3]) } { x => x+1 }
+  with Iter[Int] {
+    def yield(x) = { println(x); resume(()) }
+  }
\ No newline at end of file