diff --git a/lib-python/2.7/compileall.py b/Lib/compileall.py
rename from lib-python/2.7/compileall.py
rename to Lib/compileall.py
--- a/lib-python/2.7/compileall.py
+++ b/Lib/compileall.py
@@ -86,7 +86,7 @@
                 try:
                     mtime = int(os.stat(fullname).st_mtime)
                     expect = struct.pack('<4sl', imp.get_magic(), mtime)
-                    cfile = fullname + (__debug__ and 'c' or 'o')
+                    cfile = fullname.replace('.py', '$py.class')
                     with open(cfile, 'rb') as chandle:
                         actual = chandle.read(8)
                     if expect == actual:
diff --git a/bugtests/test403.py b/bugtests/test403.py
new file mode 100644
--- /dev/null
+++ b/bugtests/test403.py
@@ -0,0 +1,34 @@
+"""
+test fix for bug #1672
+
+"""
+
+import os
+import compileall
+
+PACKAGE = "test403"
+PYC_GREETER = os.path.join(PACKAGE, "greeter.pyc")
+PYCLASS_GREETER = os.path.join(PACKAGE, "greeter$py.class")
+PYCLASS_TEST = os.path.join(PACKAGE, "test$py.class")
+
+def cleanup():
+    try:
+        for f in (PYC_GREETER, PYCLASS_TEST, PYCLASS_GREETER):
+            os.unlink(f)
+    except OSError:
+        pass
+
+
+# setup
+cleanup()
+open(PYC_GREETER, "a").close()
+
+# test
+compileall.compile_dir(PACKAGE)
+print PYCLASS_TEST
+print PYCLASS_GREETER
+assert os.path.exists(PYCLASS_TEST)
+assert os.path.exists(PYCLASS_GREETER)
+
+# teardown
+cleanup()
diff --git a/bugtests/test403/greeter.py b/bugtests/test403/greeter.py
new file mode 100644
--- /dev/null
+++ b/bugtests/test403/greeter.py
@@ -0,0 +1,2 @@
+def greet():
+    print 'Hello world'
diff --git a/bugtests/test403/test.py b/bugtests/test403/test.py
new file mode 100644
--- /dev/null
+++ b/bugtests/test403/test.py
@@ -0,0 +1,3 @@
+from greeter import greet
+
+greet()