diff --git a/src/lib/annotations/annotations.html b/src/lib/annotations/annotations.html
index 3c96a26baf..019aeea20f 100644
--- a/src/lib/annotations/annotations.html
+++ b/src/lib/annotations/annotations.html
@@ -236,6 +236,8 @@
             // optionally strip whitespace
             if (stripWhiteSpace && !node.textContent.trim()) {
               root.removeChild(node);
+              // decrement index since node is removed
+              i--;
             }
           }
           // if this node didn't get evacipated, parse it.
diff --git a/test/unit/template-whitespace.html b/test/unit/template-whitespace.html
index 8f78bc862e..5f17145f21 100644
--- a/test/unit/template-whitespace.html
+++ b/test/unit/template-whitespace.html
@@ -96,6 +96,36 @@
 
 </dom-module>
 
+<dom-module id="no-whitespace-binding">
+
+  <template strip-whitespace> 
+
+    <div id="text">{{text}}</div>
+    <div id="attr" attr$="{{attr}}">
+      <div>A</div>
+    </div>
+    <div>
+      <div>B</div>
+    </div>
+    <div id="compound"> {{a}} {{b}} </div>
+  </template>
+
+  <script>
+  HTMLImports.whenReady(function() {
+    Polymer({
+      properties: {
+        text: {value: 'text'},
+        attr: {value: 'attr'},
+        a: {value: 'a'},
+        b: {value: 'b'}
+      },
+      is: 'no-whitespace-binding'
+    });
+  });  
+  </script>
+
+</dom-module>
+
 
 
 <script>
@@ -131,6 +161,14 @@
       assert.equal(Polymer.dom(el.root).childNodes[1].childNodes.length, Polymer.dom(el.root).childNodes[1].children.length);
     });
 
+    test('template with nested content stamped without whitespace when strip-template is used', function() {
+      var el = document.createElement('no-whitespace-binding');
+      document.body.appendChild(el);
+      assert.equal(el.$.text.textContent, 'text');
+      assert.equal(el.$.attr.getAttribute('attr'), 'attr');
+      assert.equal(el.$.compound.textContent, ' a b ');
+    });
+
   });
 
 </script>