diff --git a/CHANGELOG.md b/CHANGELOG.md
index a9582b35bd..f248204808 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -38,6 +38,7 @@
 #### :bug: Bug fix
 
 - Fix recursive untagged variant type checking by delaying well-formedness checks until environment construction completes. [#7320](https://github.com/rescript-lang/rescript/pull/7320)
+- Fix incorrect expansion of polymorphic return types in uncurried function applications. https://github.com/rescript-lang/rescript/pull/7338
 
 # 12.0.0-alpha.9
 
diff --git a/compiler/ml/typecore.ml b/compiler/ml/typecore.ml
index ffbfc0ac42..4d14ddc3f2 100644
--- a/compiler/ml/typecore.ml
+++ b/compiler/ml/typecore.ml
@@ -3554,7 +3554,9 @@ and type_application ?type_clash_context total_app env funct (sargs : sargs) :
         let ty_fun = expand_head env ty_fun in
         let arity_ok = List.length args < max_arity in
         match ty_fun.desc with
-        | Tvar _ ->
+        | Tvar _ when force_tvar ->
+          (* This is a total application when the toplevel type is a polymorphic variable,
+          so the function type including arity can be inferred. *)
           let t1 = newvar () and t2 = newvar () in
           if ty_fun.level >= t1.level && not_identity funct.exp_desc then
             Location.prerr_warning sarg1.pexp_loc Warnings.Unused_argument;
diff --git a/tests/build_tests/super_errors/expected/fun_return_poly1.res.expected b/tests/build_tests/super_errors/expected/fun_return_poly1.res.expected
new file mode 100644
index 0000000000..e19cffd36e
--- /dev/null
+++ b/tests/build_tests/super_errors/expected/fun_return_poly1.res.expected
@@ -0,0 +1,23 @@
+
+  Warning number 20
+  /.../fixtures/fun_return_poly1.res:3:15
+
+  1 │ let f = (_, ~def=3) => assert(false)
+  2 │ 
+  3 │ let ok = f(1)(2)
+  4 │ let err = f(1, 2)
+  5 │ 
+
+  this argument will not be used by the function.
+
+
+  We've found a bug for you!
+  /.../fixtures/fun_return_poly1.res:4:16
+
+  2 │ 
+  3 │ let ok = f(1)(2)
+  4 │ let err = f(1, 2)
+  5 │ 
+
+  The function applied to this argument has type ('a, ~def: int=?) => 'b
+This argument cannot be applied without label
\ No newline at end of file
diff --git a/tests/build_tests/super_errors/expected/fun_return_poly2.res.expected b/tests/build_tests/super_errors/expected/fun_return_poly2.res.expected
new file mode 100644
index 0000000000..54fcade1ac
--- /dev/null
+++ b/tests/build_tests/super_errors/expected/fun_return_poly2.res.expected
@@ -0,0 +1,24 @@
+
+  Warning number 20
+  /.../fixtures/fun_return_poly2.res:6:30
+
+  4 │ }
+  5 │ 
+  6 │ let ok = r("")(~initialValue=2)
+  7 │ let err = r("", ~initialValue=2)
+  8 │ 
+
+  this argument will not be used by the function.
+
+
+  We've found a bug for you!
+  /.../fixtures/fun_return_poly2.res:7:31
+
+  5 │ 
+  6 │ let ok = r("")(~initialValue=2)
+  7 │ let err = r("", ~initialValue=2)
+  8 │ 
+
+  The function applied to this argument has type
+    (string, ~wrongLabelName: int=?) => 'a
+This argument cannot be applied with label ~initialValue
\ No newline at end of file
diff --git a/tests/build_tests/super_errors/fixtures/fun_return_poly1.res b/tests/build_tests/super_errors/fixtures/fun_return_poly1.res
new file mode 100644
index 0000000000..49922cd8e8
--- /dev/null
+++ b/tests/build_tests/super_errors/fixtures/fun_return_poly1.res
@@ -0,0 +1,4 @@
+let f = (_, ~def=3) => assert(false)
+
+let ok = f(1)(2)
+let err = f(1, 2)
diff --git a/tests/build_tests/super_errors/fixtures/fun_return_poly2.res b/tests/build_tests/super_errors/fixtures/fun_return_poly2.res
new file mode 100644
index 0000000000..f9c465d95b
--- /dev/null
+++ b/tests/build_tests/super_errors/fixtures/fun_return_poly2.res
@@ -0,0 +1,7 @@
+let r: (string, ~wrongLabelName: int=?) => 'a = (_s, ~wrongLabelName=3) => {
+  let _ = wrongLabelName
+  assert(false)
+}
+
+let ok = r("")(~initialValue=2)
+let err = r("", ~initialValue=2)