diff --git a/tests/codegen/handlers/test_unnest_inner_classes.py b/tests/codegen/handlers/test_unnest_inner_classes.py
index 8b7b953cc..0e216e2b3 100644
--- a/tests/codegen/handlers/test_unnest_inner_classes.py
+++ b/tests/codegen/handlers/test_unnest_inner_classes.py
@@ -15,124 +15,99 @@ def setUp(self):
         self.container = ClassContainer(config=GeneratorConfig())
         self.processor = UnnestInnerClasses(container=self.container)
 
-    def test_process(self):
+    def test_process_with_config_enabled(self):
+        self.container.config.output.unnest_classes = True
+        a = ClassFactory.create()
+        b = ClassFactory.create()
+        c = ClassFactory.create()
+
+        a.attrs.append(AttrFactory.reference(b.qname, forward=True))
+        b.attrs.append(AttrFactory.reference(c.qname, forward=True))
+        c.attrs.append(AttrFactory.reference(b.qname, forward=True))
+
+        a.inner.append(b)
+        b.inner.append(c)
+        b.parent = a
+        c.parent = b
+
+        self.container.add(a)
+        self.processor.process(a)
+        self.assertEqual(3, len(list(self.container)))
+
+        self.assertEqual(b.qname, a.attrs[0].types[0].qname)
+        self.assertEqual(c.qname, b.attrs[0].types[0].qname)
+        self.assertEqual(b.qname, c.attrs[0].types[0].qname)
+
+    def test_process_with_config_disabled_promotes_only_enumerations(self):
         self.container.config.output.unnest_classes = False
+        a = ClassFactory.create()
+        b = ClassFactory.create()
+        c = ClassFactory.enumeration(2)
 
-        enumeration = ClassFactory.enumeration(2)
-        local_type = ClassFactory.elements(2)
-        target = ClassFactory.create()
+        a.attrs.append(AttrFactory.reference(b.qname, forward=True))
+        b.attrs.append(AttrFactory.reference(c.qname, forward=True))
 
-        target.inner.append(enumeration)
-        target.inner.append(local_type)
-        self.container.add(target)
+        a.inner.append(b)
+        b.inner.append(c)
+        b.parent = a
+        c.parent = b
 
-        self.processor.process(target)
+        self.container.add(a)
+        self.processor.process(a)
 
-        self.assertEqual(1, len(target.inner))
-        self.assertTrue(local_type in target.inner)
+        self.assertEqual(2, len(list(self.container)))
+        self.assertEqual(c.qname, b.attrs[0].types[0].qname)
+        self.assertEqual(1, len(a.inner))
+        self.assertEqual(0, len(b.inner))
 
+    def test_process_with_orphan_nested_class(self):
         self.container.config.output.unnest_classes = True
-        self.processor.process(target)
-        self.assertEqual(0, len(target.inner))
-
-    def test_promote_with_orphan_inner(self):
-        inner = ClassFactory.elements(2)
-        target = ClassFactory.create()
-        target.inner.append(inner)
-        self.container.add(target)
-
-        self.processor.promote(target, inner)
-
-        self.assertEqual(0, len(target.inner))
-        self.assertEqual(1, len(self.container.data))
-
-    def test_promote_updates_forward_attr_types(self):
-        inner = ClassFactory.elements(2)
-        attr = AttrFactory.reference(inner.qname, forward=True)
-        target = ClassFactory.create()
-        target.attrs.append(attr)
-        target.inner.append(inner)
-        self.container.add(target)
-
-        self.processor.promote(target, inner)
-
-        self.assertEqual(0, len(target.inner))
-        self.assertEqual(2, len(self.container.data))
-        self.assertFalse(attr.types[0].forward)
-        self.assertEqual("{xsdata}class_C_class_B", attr.types[0].qname)
-
-    def test_clone_class(self):
-        target = ClassFactory.create(qname="{a}b")
-        actual = self.processor.clone_class(target, "parent")
-
-        self.assertIsNot(target, actual)
-        self.assertTrue(actual.local_type)
-        self.assertEqual("{a}parent_b", actual.qname)
-
-    def test_clone_class_with_circular_reference(self):
-        target = ClassFactory.create(qname="{a}b")
-        target.attrs.append(
-            AttrFactory.create(
-                name="self",
-                types=[AttrTypeFactory.create(qname=target.qname, circular=True)],
-            )
-        )
-
-        actual = self.processor.clone_class(target, "parent")
-
-        self.assertIsNot(target, actual)
-        self.assertTrue(actual.local_type)
-        self.assertEqual("{a}parent_b", actual.qname)
-
-        self.assertTrue(actual.attrs[0].types[0].circular)
-        self.assertEqual(actual.ref, actual.attrs[0].types[0].reference)
-        self.assertEqual(actual.qname, actual.attrs[0].types[0].qname)
+        a = ClassFactory.create()
+        b = ClassFactory.create()
+        c = ClassFactory.create()
+
+        a.inner.append(b)
+        b.inner.append(c)
+        b.parent = a
+        c.parent = b
+
+        self.container.add(a)
+        self.processor.process(a)
+        self.assertEqual(1, len(list(self.container)))
+        self.assertEqual(0, len(a.inner))
+        self.assertEqual(0, len(b.inner))
+
+    def test_update_nested_class(self):
+        a = ClassFactory.create(qname="a")
+        b = ClassFactory.create(qname="b")
+        c = ClassFactory.create(qname="c")
+        a.inner.append(b)
+        b.inner.append(c)
+        b.parent = a
+        c.parent = b
+
+        self.processor.update_nested_class(c)
+
+        self.assertEqual("b_c", c.qname)
+        self.assertTrue(c.local_type)
+        self.assertIsNone(c.parent)
+        self.assertEqual(0, len(b.inner))
 
     def test_update_types(self):
-        attr = AttrFactory.create(
-            types=[
-                AttrTypeFactory.create(qname="a", forward=True),
-                AttrTypeFactory.create(qname="a", forward=False),
-                AttrTypeFactory.create(qname="b", forward=False),
-            ]
-        )
-        source = ClassFactory.create()
-
-        self.processor.update_types(attr, "a", source)
-
-        self.assertEqual(source.qname, attr.types[0].qname)
-        self.assertFalse(attr.types[0].forward)
-        self.assertEqual(source.ref, attr.types[0].reference)
-
-        self.assertEqual("a", attr.types[1].qname)
-        self.assertFalse(attr.types[1].forward)
-        self.assertEqual("b", attr.types[2].qname)
-        self.assertFalse(attr.types[2].forward)
-
-    def test_find_forward_attr(self):
-        target = ClassFactory.create(
-            attrs=[
-                AttrFactory.create(
-                    types=[
-                        AttrTypeFactory.create("a", forward=False),
-                        AttrTypeFactory.create("b", forward=False),
-                    ]
-                ),
-                AttrFactory.create(
-                    types=[
-                        AttrTypeFactory.create("a", forward=True),
-                        AttrTypeFactory.create("b", forward=True),
-                    ]
-                ),
-                AttrFactory.create(),
-            ]
-        )
-
-        actual = self.processor.find_forward_attr(target, "a")
-        self.assertEqual(target.attrs[1], actual)
-
-        actual = self.processor.find_forward_attr(target, "b")
-        self.assertEqual(target.attrs[1], actual)
-
-        actual = self.processor.find_forward_attr(target, "c")
-        self.assertIsNone(actual)
+        types = [
+            AttrTypeFactory.create(qname="a", forward=True),
+            AttrTypeFactory.create(qname="a", forward=False),
+            AttrTypeFactory.create(qname="b", forward=True),
+        ]
+
+        result = self.processor.update_types(types, "a", "b")
+        self.assertEqual(1, result)
+
+        self.assertEqual("b", types[0].qname)
+        self.assertFalse(types[0].forward)
+
+        self.assertEqual("a", types[1].qname)
+        self.assertFalse(types[1].forward)
+
+        self.assertEqual("b", types[2].qname)
+        self.assertTrue(types[2].forward)
diff --git a/tests/codegen/test_container.py b/tests/codegen/test_container.py
index cdf9a5880..5811e7a43 100644
--- a/tests/codegen/test_container.py
+++ b/tests/codegen/test_container.py
@@ -125,10 +125,12 @@ def test_process_class(self):
         self.assertEqual(Status.FINALIZED, target.inner[1].status)
 
     def test_process_classes(self):
-        target = ClassFactory.create(
-            attrs=[AttrFactory.reference("enumeration", forward=True)],
-            inner=[ClassFactory.enumeration(2, qname="enumeration")],
-        )
+        target = ClassFactory.create()
+        inner = ClassFactory.enumeration(2, qname="enumeration")
+
+        target.inner.append(inner)
+        inner.parent = target
+        target.attrs.append(AttrFactory.reference("enumeration", forward=True))
 
         self.container.add(target)
         self.container.process_classes(Steps.FLATTEN)
diff --git a/xsdata/codegen/handlers/unnest_inner_classes.py b/xsdata/codegen/handlers/unnest_inner_classes.py
index 564fe71ed..c1edcb081 100644
--- a/xsdata/codegen/handlers/unnest_inner_classes.py
+++ b/xsdata/codegen/handlers/unnest_inner_classes.py
@@ -1,7 +1,7 @@
-from typing import Optional
+from typing import Iterator, List
 
 from xsdata.codegen.mixins import RelativeHandlerInterface
-from xsdata.codegen.models import Attr, Class
+from xsdata.codegen.models import AttrType, Class
 from xsdata.utils.namespaces import build_qname
 
 
@@ -22,86 +22,62 @@ def process(self, target: Class):
         Args:
             target: The target class instance to inspect
         """
-        for inner in target.inner.copy():
-            if inner.is_enumeration or self.container.config.output.unnest_classes:
-                self.promote(target, inner)
+        all_types = list(target.types())
+        promote_all = self.container.config.output.unnest_classes
+        for nested in list(self.find_nested_classes(target)):
+            if not (promote_all or nested.is_enumeration):
+                continue
 
-    def promote(self, target: Class, inner: Class):
-        """Promote the inner class to root classes.
-
-        Steps:
-            - Replace forward references to the inner class
-            - Remove inner class from target class
-            - Copy the class to the global class container.
-
-        Args:
-            target: The target class
-            inner: An inner class
-        """
-        target.inner.remove(inner)
-        attr = self.find_forward_attr(target, inner.qname)
-        if attr:
-            clone = self.clone_class(inner, target.name)
-            self.update_types(attr, inner.qname, clone)
-            self.container.add(clone)
+            cur_qname = nested.qname
+            self.update_nested_class(nested)
+            if self.update_types(all_types, cur_qname, nested.qname):
+                self.container.add(nested)
 
     @classmethod
-    def clone_class(cls, inner: Class, name: str) -> Class:
-        """Clone and prepare inner class for promotion.
+    def find_nested_classes(cls, target: Class) -> Iterator[Class]:
+        """Return all inner classes recursively."""
+        for inner in target.inner:
+            yield inner
+            yield from cls.find_nested_classes(inner)
 
-        Clone the inner class, mark it as promoted and pref
-        the qualified name with the parent class name.
+    @classmethod
+    def update_nested_class(cls, target: Class):
+        """Prepare the nested class to be added as root.
 
         Args:
-            inner: The inner class to clone and prepare
-            name: The parent class name to use a prefix
-
-        Returns:
-            The new class instance
+            target: The target class
         """
-        clone = inner.clone()
-        clone.parent = None
-        clone.local_type = True
-        clone.qname = build_qname(inner.target_namespace, f"{name}_{inner.name}")
+        assert target.parent is not None
+        name_parts = [target.parent.name, target.name]
+        new_qname = build_qname(target.target_namespace, "_".join(name_parts))
 
-        for attr in clone.attrs:
-            for tp in attr.types:
-                if tp.circular and tp.qname == inner.qname:
-                    tp.qname = clone.qname
-                    tp.reference = clone.ref
+        target.qname = new_qname
 
-        return clone
+        assert target.parent is not None
 
-    @classmethod
-    def update_types(cls, attr: Attr, search: str, source: Class):
-        """Update the references from an inner to a global class.
-
-        Args:
-            attr: The target attr to inspect and update
-            search: The current inner class qname
-            source: The new global class qname
-        """
-        for attr_type in attr.types:
-            if attr_type.qname == search and attr_type.forward:
-                attr_type.qname = source.qname
-                attr_type.reference = source.ref
-                attr_type.forward = False
+        target.parent.inner.remove(target)
+        target.parent = None
+        target.local_type = True
 
     @classmethod
-    def find_forward_attr(cls, target: Class, qname: str) -> Optional[Attr]:
-        """Find the first attr that references the given inner class qname.
+    def update_types(cls, types: List[AttrType], search: str, replace: str) -> int:
+        """Search and replace forward references.
+
+        Return the number changes.
 
         Args:
-            target: The target class instance
-            qname: An inner class qualified name
+            types: The types to search and replace
+            search: The search qname
+            replace: The replacement qname
 
         Returns:
-            Attr: The first attr that references the given qname
-            None: If no such attr exists, it can happen!
+            The number of changed attr types
         """
-        for attr in target.attrs:
-            for attr_type in attr.types:
-                if attr_type.forward and attr_type.qname == qname:
-                    return attr
-
-        return None
+        updated = 0
+        for tp in types:
+            if tp.forward and tp.qname == search:
+                tp.qname = replace
+                tp.forward = False
+                updated += 1
+
+        return updated