fix: skip block-scoped variable check for label identifiers

src/compiler/checker.ts

@@ -3603,6 +3603,18 @@ export function createTypeChecker(host: TypeCheckerHost): TypeChecker {
             // constructor functions aren't block scoped
             return;
         }
+        // Labels are in a separate namespace from variables; a label identifier
+        // that happens to share a name with a block-scoped variable should not
+        // trigger a "used before its declaration" error.
+        if (errorLocation.parent) {
+            const parent = errorLocation.parent;
+            if (
+                parent.kind === SyntaxKind.LabeledStatement && (parent as LabeledStatement).label === errorLocation ||
+                (parent.kind === SyntaxKind.BreakStatement || parent.kind === SyntaxKind.ContinueStatement) && (parent as BreakOrContinueStatement).label === errorLocation
+            ) {
+                return;
+            }
+        }
         // Block-scoped variables cannot be used before their definition
         const declaration = result.declarations?.find(
             d => isBlockOrCatchScoped(d) || isClassLike(d) || (d.kind === SyntaxKind.EnumDeclaration),

tests/cases/conformance/statements/labeledStatements/labeledStatementWithBlockScopedVariable.ts

@@ -0,0 +1,25 @@
+// @target: es2015
+
+// Labels should not conflict with block-scoped variables declared later.
+// A label named `foo` is in a different namespace from a variable named `foo`.
+
+// Label defined before let variable of the same name
+foo: while (true) {
+    break foo;
+}
+let foo = 1;
+
+// Label defined before const variable of the same name
+bar: for (;;) {
+    continue bar;
+}
+const bar = 2;
+
+// Nested labeled statement with same-name variable
+outer: for (let i = 0; i < 1; i++) {
+    inner: for (let j = 0; j < 1; j++) {
+        break outer;
+    }
+}
+let outer = "hello";
+let inner = "world";