diff --git a/Data/Yaml.hs b/Data/Yaml.hs
--- a/Data/Yaml.hs
+++ b/Data/Yaml.hs
@@ -260,11 +260,11 @@
             let al  = M.insert s o front
                 al' = if s == pack "<<"
                          then case o of
-                                  Object l  -> M.union al l
-                                  Array l -> M.union al $ foldl merge' M.empty $ V.toList l
+                                  Object l  -> M.union front l
+                                  Array l -> M.union front $ foldl merge' M.empty $ V.toList l
                                   _          -> al
                          else al
-            parseM a $ M.insert s o al'
+            parseM a al'
     where merge' al (Object om) = M.union al om
           merge' al _           = al
 
diff --git a/test/main.hs b/test/main.hs
--- a/test/main.hs
+++ b/test/main.hs
@@ -62,6 +62,8 @@
         it "parses when titlecase" caseTitlecaseBool
     describe "empty input" $ do
         it "doesn't crash" caseEmptyInput
+    describe "alias stripping" $ do
+        it "works" caseStripAlias
     describe "nulls" $ do
         checkNull "null"
         checkNull "Null"
@@ -365,3 +367,19 @@
     it ("null recognized: " ++ show x) assertion
   where
     assertion = Just (object [("foo", D.Null)]) @=? D.decode (B8.pack $ "foo: " ++ T.unpack x)
+
+caseStripAlias :: Assertion
+caseStripAlias =
+    D.decode src @?= Just (object
+        [ "Default" .= object
+            [ "foo" .= (1 :: Int)
+            , "bar" .= (2 :: Int)
+            ]
+        , "Obj" .= object
+            [ "foo" .= (1 :: Int)
+            , "bar" .= (2 :: Int)
+            , "key" .= (3 :: Int)
+            ]
+        ])
+  where
+    src = "Default: &def\n  foo: 1\n  bar: 2\nObj:\n  <<: *def\n  key: 3\n"
diff --git a/yaml.cabal b/yaml.cabal
--- a/yaml.cabal
+++ b/yaml.cabal
@@ -1,5 +1,5 @@
 name:            yaml
-version:         0.8.4
+version:         0.8.4.1
 license:         BSD3
 license-file:    LICENSE
 author:          Michael Snoyman <michael@snoyman.com>, Anton Ageev <antage@gmail.com>,Kirill Simonov