diff --git a/py/lexer.c b/py/lexer.c
index 373a8d7231849af798fa0c4e5b54f0a0379f7bda..f736ef3030d996caaa2683f2fd00a2851b42d209 100644
--- a/py/lexer.c
+++ b/py/lexer.c
@@ -210,8 +210,9 @@ STATIC void next_char(mp_lexer_t *lex) {
 
 void indent_push(mp_lexer_t *lex, uint indent) {
     if (lex->num_indent_level >= lex->alloc_indent_level) {
-        lex->indent_level = m_renew(uint16_t, lex->indent_level, lex->alloc_indent_level, lex->alloc_indent_level * 2);
-        lex->alloc_indent_level *= 2;
+        // TODO use m_renew_maybe and somehow indicate an error if it fails... probably by using MP_TOKEN_MEMORY_ERROR
+        lex->indent_level = m_renew(uint16_t, lex->indent_level, lex->alloc_indent_level, lex->alloc_indent_level + MP_ALLOC_LEXEL_INDENT_INC);
+        lex->alloc_indent_level += MP_ALLOC_LEXEL_INDENT_INC;
     }
     lex->indent_level[lex->num_indent_level++] = indent;
 }
@@ -696,7 +697,15 @@ STATIC void mp_lexer_next_token_into(mp_lexer_t *lex, mp_token_t *tok, bool firs
 }
 
 mp_lexer_t *mp_lexer_new(qstr src_name, void *stream_data, mp_lexer_stream_next_char_t stream_next_char, mp_lexer_stream_close_t stream_close) {
-    mp_lexer_t *lex = m_new(mp_lexer_t, 1);
+    mp_lexer_t *lex = m_new_maybe(mp_lexer_t, 1);
+
+    // check for memory allocation error
+    if (lex == NULL) {
+        if (stream_close) {
+            stream_close(stream_data);
+        }
+        return NULL;
+    }
 
     lex->source_name = src_name;
     lex->stream_data = stream_data;
@@ -706,12 +715,20 @@ mp_lexer_t *mp_lexer_new(qstr src_name, void *stream_data, mp_lexer_stream_next_
     lex->column = 1;
     lex->emit_dent = 0;
     lex->nested_bracket_level = 0;
-    lex->alloc_indent_level = 16;
+    lex->alloc_indent_level = MP_ALLOC_LEXER_INDENT_INIT;
     lex->num_indent_level = 1;
-    lex->indent_level = m_new(uint16_t, lex->alloc_indent_level);
-    lex->indent_level[0] = 0;
+    lex->indent_level = m_new_maybe(uint16_t, lex->alloc_indent_level);
     vstr_init(&lex->vstr, 32);
 
+    // check for memory allocation error
+    if (lex->indent_level == NULL || vstr_had_error(&lex->vstr)) {
+        mp_lexer_free(lex);
+        return NULL;
+    }
+
+    // store sentinel for first indentation level
+    lex->indent_level[0] = 0;
+
     // preload characters
     lex->chr0 = stream_next_char(stream_data);
     lex->chr1 = stream_next_char(stream_data);
diff --git a/py/mpconfig.h b/py/mpconfig.h
index 73ecc92d1665e88a279a75d686c49ba923a9079f..a7e1c4a40da181139a0c91b1bd37542bb219bc16 100644
--- a/py/mpconfig.h
+++ b/py/mpconfig.h
@@ -36,6 +36,16 @@
 /*****************************************************************************/
 /* Memory allocation policy                                                  */
 
+// Initial amount for lexer indentation level
+#ifndef MP_ALLOC_LEXER_INDENT_INIT
+#define MP_ALLOC_LEXER_INDENT_INIT (10)
+#endif
+
+// Increment for lexer indentation level
+#ifndef MP_ALLOC_LEXEL_INDENT_INC
+#define MP_ALLOC_LEXEL_INDENT_INC (8)
+#endif
+
 // Initial amount for parse rule stack
 #ifndef MP_ALLOC_PARSE_RULE_INIT
 #define MP_ALLOC_PARSE_RULE_INIT (64)