diff --git a/CHANGELOG.md b/CHANGELOG.md
index ee12e337a5..74cdaf7ec3 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -23,6 +23,7 @@
 - Rewatch: warnings for unsupported/unknown rescript.json fields. https://github.com/rescript-lang/rescript/pull/8031
 - Fix missing `ignore` function in some Stdlib modules. https://github.com/rescript-lang/rescript/pull/8060
 - Fix signature matching for externals when abstract alias hides function arity. https://github.com/rescript-lang/rescript/pull/8045
+- Fix arity detection for arrows returning nested generics. https://github.com/rescript-lang/rescript/pull/8064
 
 #### :memo: Documentation
 
diff --git a/compiler/syntax/src/res_core.ml b/compiler/syntax/src/res_core.ml
index 3718739c4b..a3dd8f981e 100644
--- a/compiler/syntax/src/res_core.ml
+++ b/compiler/syntax/src/res_core.ml
@@ -362,8 +362,10 @@ let is_es6_arrow_expression ~in_ternary p =
               (match state.Parser.token with
               (* arrived at `() :typ<` here *)
               | LessThan ->
+                Scanner.set_diamond_mode state.scanner;
                 Parser.next state;
-                go_to_closing GreaterThan state
+                go_to_closing GreaterThan state;
+                Scanner.pop_mode state.scanner Diamond
               | _ -> ());
               match state.Parser.token with
               (* arrived at `() :typ =>` or `() :typ<'a,'b> =>` here *)
diff --git a/tests/syntax_tests/data/parsing/grammar/expressions/arrow.res b/tests/syntax_tests/data/parsing/grammar/expressions/arrow.res
index e13dd438e7..a382e1b52f 100644
--- a/tests/syntax_tests/data/parsing/grammar/expressions/arrow.res
+++ b/tests/syntax_tests/data/parsing/grammar/expressions/arrow.res
@@ -107,4 +107,6 @@ let arr = (): array<nullable<int>> => []
 
 let fn = f => f;
 type f = int => unit;
-let a = fn(_ => (): f);
\ No newline at end of file
+let a = fn(_ => (): f);
+
+let returnsArrayOption = (): option<array<string>> => Some(["foo"])
diff --git a/tests/syntax_tests/data/parsing/grammar/expressions/expected/arrow.res.txt b/tests/syntax_tests/data/parsing/grammar/expressions/expected/arrow.res.txt
index aa9afaab35..7bc56d1e4b 100644
--- a/tests/syntax_tests/data/parsing/grammar/expressions/expected/arrow.res.txt
+++ b/tests/syntax_tests/data/parsing/grammar/expressions/expected/arrow.res.txt
@@ -74,7 +74,9 @@ type nonrec u = unit
 let un = (() : u)
 type nonrec ('a, 'b) d = ('a * 'b)
 let c [arity:1]() = ((1, 2) : ('a, 'b) d)
-let arr () = ([||] : int nullable array)
+let arr [arity:1]() = ([||] : int nullable array)
 let fn [arity:1]f = f
 type nonrec f = int -> unit (a:1)
-let a = fn (fun [arity:1]_ -> () : f)
\ No newline at end of file
+let a = fn (fun [arity:1]_ -> () : f)
+let returnsArrayOption [arity:1]() =
+  (Some [|{js|foo|js}|] : string array option)
\ No newline at end of file
diff --git a/tests/tests/src/nested_generic_return.mjs b/tests/tests/src/nested_generic_return.mjs
new file mode 100644
index 0000000000..d319b249ec
--- /dev/null
+++ b/tests/tests/src/nested_generic_return.mjs
@@ -0,0 +1,22 @@
+// Generated by ReScript, PLEASE EDIT WITH CARE
+
+
+function foo() {
+  return ["foo"];
+}
+
+let bar = ["foo"];
+
+function nested() {
+  return 1;
+}
+
+let baz = 1;
+
+export {
+  foo,
+  bar,
+  nested,
+  baz,
+}
+/* No side effect */
diff --git a/tests/tests/src/nested_generic_return.res b/tests/tests/src/nested_generic_return.res
new file mode 100644
index 0000000000..e78702c3c2
--- /dev/null
+++ b/tests/tests/src/nested_generic_return.res
@@ -0,0 +1,7 @@
+// https://github.com/rescript-lang/rescript/issues/8055
+
+let foo = (): option<array<string>> => Some(["foo"])
+let bar = foo()
+
+let nested = (): option<option<int>> => Some(Some(1))
+let baz = nested()