Don't recurse down closures for duplicate-label checking

src/librustc/middle/resolve_lifetime.rs

@@ -372,6 +372,12 @@ fn extract_labels<'v, 'a>(ctxt: &mut LifetimeContext<'a>, b: &'v ast::Block) {
 
     impl<'v, 'a> Visitor<'v> for GatherLabels<'a> {
         fn visit_expr(&mut self, ex: &'v ast::Expr) {
+            // do not recurse into closures defined in the block
+            // since they are treated as separate fns from the POV of
+            // labels_in_fn
+            if let ast::ExprClosure(..) = ex.node {
+                return
+            }
             if let Some(label) = expression_label(ex) {
                 for &(prior, prior_span) in &self.labels_in_fn[..] {
                     // FIXME (#24278): non-hygienic comparison

src/test/run-pass/issue-25343.rs

@@ -0,0 +1,16 @@
+// Copyright 2015 The Rust Project Developers. See the COPYRIGHT
+// file at the top-level directory of this distribution and at
+// http://rust-lang.org/COPYRIGHT.
+//
+// Licensed under the Apache License, Version 2.0 <LICENSE-APACHE or
+// http://www.apache.org/licenses/LICENSE-2.0> or the MIT license
+// <LICENSE-MIT or http://opensource.org/licenses/MIT>, at your
+// option. This file may not be copied, modified, or distributed
+// except according to those terms.
+
+fn main() {
+    || {
+        'label: loop {
+        }
+    };
+}