diff --git a/py/emitbc.c b/py/emitbc.c
index 365ec458a2..161e8c7f6d 100644
--- a/py/emitbc.c
+++ b/py/emitbc.c
@@ -115,12 +115,24 @@ STATIC void emit_write_code_info_qstr(emit_t* emit, qstr qstr) {
 #if MICROPY_ENABLE_SOURCE_LINE
 STATIC void emit_write_code_info_bytes_lines(emit_t* emit, uint bytes_to_skip, uint lines_to_skip) {
     assert(bytes_to_skip > 0 || lines_to_skip > 0);
+    //printf("  %d %d\n", bytes_to_skip, lines_to_skip);
     while (bytes_to_skip > 0 || lines_to_skip > 0) {
-        uint b = MIN(bytes_to_skip, 31);
-        uint l = MIN(lines_to_skip, 7);
+        mp_uint_t b, l;
+        if (lines_to_skip <= 6) {
+            // use 0b0LLBBBBB encoding
+            b = MIN(bytes_to_skip, 0x1f);
+            l = MIN(lines_to_skip, 0x3);
+            *emit_get_cur_to_write_code_info(emit, 1) = b | (l << 5);
+        } else {
+            // use 0b1LLLBBBB 0bLLLLLLLL encoding (l's LSB in second byte)
+            b = MIN(bytes_to_skip, 0xf);
+            l = MIN(lines_to_skip, 0x7ff);
+            byte *ci = emit_get_cur_to_write_code_info(emit, 2);
+            ci[0] = 0x80 | b | ((l >> 4) & 0x70);
+            ci[1] = l;
+        }
         bytes_to_skip -= b;
         lines_to_skip -= l;
-        *emit_get_cur_to_write_code_info(emit, 1) = b | (l << 5);
     }
 }
 #endif
@@ -363,7 +375,6 @@ STATIC void emit_bc_set_source_line(emit_t *emit, int source_line) {
         uint bytes_to_skip = emit->bytecode_offset - emit->last_source_line_offset;
         uint lines_to_skip = source_line - emit->last_source_line;
         emit_write_code_info_bytes_lines(emit, bytes_to_skip, lines_to_skip);
-        //printf("  %d %d\n", bytes_to_skip, lines_to_skip);
         emit->last_source_line_offset = emit->bytecode_offset;
         emit->last_source_line = source_line;
     }
diff --git a/py/showbc.c b/py/showbc.c
index 12400fa7c2..6c10333c9f 100644
--- a/py/showbc.c
+++ b/py/showbc.c
@@ -95,9 +95,18 @@ void mp_bytecode_print(const void *descr, const byte *ip, int len) {
         mp_int_t bc = (code_info + code_info_size) - ip;
         mp_uint_t source_line = 1;
         printf("  bc=" INT_FMT " line=" UINT_FMT "\n", bc, source_line);
-        for (const byte* ci = code_info + 12; *ci; ci++) {
-            bc += *ci & 31;
-            source_line += *ci >> 5;
+        for (const byte* ci = code_info + 12; *ci;) {
+            if ((ci[0] & 0x80) == 0) {
+                // 0b0LLBBBBB encoding
+                bc += ci[0] & 0x1f;
+                source_line += ci[0] >> 5;
+                ci += 1;
+            } else {
+                // 0b1LLLBBBB 0bLLLLLLLL encoding (l's LSB in second byte)
+                bc += ci[0] & 0xf;
+                source_line += ((ci[0] << 4) & 0x700) | ci[1];
+                ci += 2;
+            }
             printf("  bc=" INT_FMT " line=" UINT_FMT "\n", bc, source_line);
         }
     }
diff --git a/py/vm.c b/py/vm.c
index ade2ee2b5a..c0116bbeb9 100644
--- a/py/vm.c
+++ b/py/vm.c
@@ -931,9 +931,27 @@ exception_handler:
                 const byte* ci = code_info + 12;
                 if (*ci) {
                     source_line = 1;
-                    for (; *ci && bc >= ((*ci) & 31); ci++) {
-                        bc -= *ci & 31;
-                        source_line += *ci >> 5;
+                    mp_uint_t c;
+                    while ((c = *ci)) {
+                        mp_uint_t b, l;
+                        if ((c & 0x80) == 0) {
+                            // 0b0LLBBBBB encoding
+                            b = c & 0x1f;
+                            l = c >> 5;
+                            ci += 1;
+                        } else {
+                            // 0b1LLLBBBB 0bLLLLLLLL encoding (l's LSB in second byte)
+                            b = c & 0xf;
+                            l = ((c << 4) & 0x700) | ci[1];
+                            ci += 2;
+                        }
+                        if (bc >= b) {
+                            bc -= b;
+                            source_line += l;
+                        } else {
+                            // found source line corresponding to bytecode offset
+                            break;
+                        }
                     }
                 }
                 mp_obj_exception_add_traceback(nlr.ret_val, source_file, source_line, block_name);