diff --git a/effekt/jvm/src/test/scala/effekt/LexerTests.scala b/effekt/jvm/src/test/scala/effekt/LexerTests.scala
index 0c335b422..0c70e5781 100644
--- a/effekt/jvm/src/test/scala/effekt/LexerTests.scala
+++ b/effekt/jvm/src/test/scala/effekt/LexerTests.scala
@@ -240,6 +240,33 @@ class LexerTests extends munit.FunSuite {
     )
   }
 
+  test("string splice hole") {
+    val prog = "<${x}>"
+    assertTokensEq(
+      prog,
+      `<`, `${`, Ident("x"), `}$`, `>`,
+      EOF
+    )
+  }
+
+  test("all holes") {
+    val prog = "<{<\"str\">; <>}>"
+    assertTokensEq(
+      prog,
+      `<{`, HoleStr("str"), `;`, `<>`, `}>`,
+      EOF
+    )
+  }
+
+  test("all holes imbriqued") {
+    val prog = "<{< <\"str\"> >}>"
+    assertTokensEq(
+      prog,
+      `<{`, `<`, HoleStr("str"), `>`, `}>`,
+      EOF
+    )
+  }
+
   test("multiline string holes") {
     val prog1: String =
       """<" Here it starts
diff --git a/effekt/shared/src/main/scala/effekt/Lexer.scala b/effekt/shared/src/main/scala/effekt/Lexer.scala
index 73ba5828e..5dc6ea945 100644
--- a/effekt/shared/src/main/scala/effekt/Lexer.scala
+++ b/effekt/shared/src/main/scala/effekt/Lexer.scala
@@ -227,7 +227,7 @@ object Position {
  * interpolation boundaries. When we see ${, we record the current brace depth
  * and know the interpolation ends when we return to that depth.
  */
-case class DepthTracker(var parens: Int, var braces: Int, var brackets: Int)
+case class DepthTracker(var parens: Int, var braces: Int, var brackets: Int, var holes: Int)
 
 /**
  * Never throws exceptions - always returns Error tokens for errors.
@@ -246,7 +246,7 @@ class Lexer(source: Source) extends Iterator[Token] {
 
   // String interpolation state
   private val delimiters = mutable.Stack[Delimiter]()
-  private val depthTracker = DepthTracker(0, 0, 0)
+  private val depthTracker = DepthTracker(0, 0, 0, 0)
   private val interpolationDepths = mutable.Stack[Int]()
 
   /**
@@ -444,7 +444,9 @@ class Lexer(source: Source) extends Iterator[Token] {
       case ('<', '<') => advance2With(TokenKind.`<<`)
       case ('<', '=') => advance2With(TokenKind.`<=`)
       case ('<', '>') => advance2With(TokenKind.`<>`)
-      case ('<', '{') => advance2With(TokenKind.`<{`)
+      case ('<', '{') =>
+        depthTracker.holes += 1
+        advance2With(TokenKind.`<{`)
       case ('<', '~') => advance2With(TokenKind.`<~`)
       case ('<',   _) => advanceWith(TokenKind.`<`)
 
@@ -480,7 +482,9 @@ class Lexer(source: Source) extends Iterator[Token] {
       case ('$', _) =>
         advanceWith(TokenKind.Error(LexerError.UnknownChar('$')))
 
-      case ('}', '>') => advance2With(TokenKind.`}>`)
+      case ('}', '>') if depthTracker.holes > 0 =>
+        depthTracker.holes -= 1
+        advance2With(TokenKind.`}>`)
       case ('}', _) if isAtInterpolationBoundary =>
         interpolationDepths.pop()
         depthTracker.braces -= 1
diff --git a/examples/pos/issue1301.check b/examples/pos/issue1301.check
new file mode 100644
index 000000000..9709e4251
--- /dev/null
+++ b/examples/pos/issue1301.check
@@ -0,0 +1,2 @@
+<1>
+test
\ No newline at end of file
diff --git a/examples/pos/issue1301.effekt b/examples/pos/issue1301.effekt
new file mode 100644
index 000000000..0dfdcd2e2
--- /dev/null
+++ b/examples/pos/issue1301.effekt
@@ -0,0 +1,12 @@
+def main() = {
+  def f() = <{def g() = <{<"myFun">}>; 42}>
+  val x = println(s"<${1.show}>")
+  def g() = <{ 
+    val x = 42 + <" here's a string ">
+    println(x)
+    <>
+  }>
+  val x = println(s"${"test"}")
+  def h() = println(s"<${"1" ++ <"string"> ++ <>}>")
+  ()
+}
\ No newline at end of file