diff --git a/sbt/src/sbt-test/source-dependencies/abstract-type-override/build.sbt b/sbt/src/sbt-test/source-dependencies/abstract-type-override/build.sbt
new file mode 100644
index 000000000..92d209377
--- /dev/null
+++ b/sbt/src/sbt-test/source-dependencies/abstract-type-override/build.sbt
@@ -0,0 +1,7 @@
+InputKey[Unit]("check-number-of-compiler-iterations") <<= inputTask { (argTask: TaskKey[Seq[String]]) =>
+  (argTask, compile in Compile) map { (args: Seq[String], a: sbt.inc.Analysis) =>
+    assert(args.size == 1)
+    val expectedIterationsNumber = args(0).toInt
+    assert(a.compilations.allCompilations.size == expectedIterationsNumber, "a.compilations.allCompilations.size = %d (expected %d)".format(a.compilations.allCompilations.size, expectedIterationsNumber))
+  }
+}
diff --git a/sbt/src/sbt-test/source-dependencies/abstract-type-override/changes/Bar1.scala b/sbt/src/sbt-test/source-dependencies/abstract-type-override/changes/Bar1.scala
new file mode 100644
index 000000000..fb8320f6e
--- /dev/null
+++ b/sbt/src/sbt-test/source-dependencies/abstract-type-override/changes/Bar1.scala
@@ -0,0 +1,4 @@
+object Bar {
+  def bar: Outer.TypeInner = null
+  // comment to trigger recompilation
+}
diff --git a/sbt/src/sbt-test/source-dependencies/abstract-type-override/pending b/sbt/src/sbt-test/source-dependencies/abstract-type-override/pending
new file mode 100644
index 000000000..b0bec415e
--- /dev/null
+++ b/sbt/src/sbt-test/source-dependencies/abstract-type-override/pending
@@ -0,0 +1,14 @@
+# Test for separate compilation and proper value of
+# the OVERRIDE flag when abstract types, type alias
+# and structural type are involved
+# See https://github.com/sbt/sbt/issues/726 for details
+
+# introduces first compile iteration
+> compile
+# this change adds a comment and does not change api so introduces
+# only one additional compile iteration
+$ copy-file changes/Bar1.scala src/main/scala/Bar.scala
+# second iteration
+#> compile
+# check if there are only two compile iterations performed
+> check-number-of-compiler-iterations 2
diff --git a/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Bar.scala b/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Bar.scala
new file mode 100644
index 000000000..93e2de3bc
--- /dev/null
+++ b/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Bar.scala
@@ -0,0 +1,3 @@
+object Bar {
+  def bar: Outer.TypeInner = null
+}
diff --git a/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Foo.scala b/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Foo.scala
new file mode 100644
index 000000000..44e7145e1
--- /dev/null
+++ b/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Foo.scala
@@ -0,0 +1,5 @@
+object Outer {
+  class Inner { type Xyz }
+
+  type TypeInner = Inner { type Xyz = Int }
+}
diff --git a/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Impl.scala b/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Impl.scala
new file mode 100644
index 000000000..b691898dd
--- /dev/null
+++ b/sbt/src/sbt-test/source-dependencies/abstract-type-override/src/main/scala/Impl.scala
@@ -0,0 +1,3 @@
+class Impl {
+  def bleep = Bar.bar
+}