diff --git a/pkg/compiler/codegen.go b/pkg/compiler/codegen.go
index 47afc481a..8efdb57e4 100644
--- a/pkg/compiler/codegen.go
+++ b/pkg/compiler/codegen.go
@@ -691,25 +691,21 @@ func (c *codegen) Visit(node ast.Node) ast.Visitor {
 	case *ast.BinaryExpr:
 		switch n.Op {
 		case token.LAND:
-			next := c.newLabel()
 			end := c.newLabel()
 			ast.Walk(c, n.X)
-			emit.Jmp(c.prog.BinWriter, opcode.JMPIFL, next)
+			emit.Instruction(c.prog.BinWriter, opcode.JMPIF, []byte{2 + 1 + 5})
 			emit.Opcode(c.prog.BinWriter, opcode.PUSHF)
 			emit.Jmp(c.prog.BinWriter, opcode.JMPL, end)
-			c.setLabel(next)
 			ast.Walk(c, n.Y)
 			c.setLabel(end)
 			return nil
 
 		case token.LOR:
-			next := c.newLabel()
 			end := c.newLabel()
 			ast.Walk(c, n.X)
-			emit.Jmp(c.prog.BinWriter, opcode.JMPIFNOTL, next)
+			emit.Instruction(c.prog.BinWriter, opcode.JMPIFNOT, []byte{2 + 1 + 5})
 			emit.Opcode(c.prog.BinWriter, opcode.PUSHT)
 			emit.Jmp(c.prog.BinWriter, opcode.JMPL, end)
-			c.setLabel(next)
 			ast.Walk(c, n.Y)
 			c.setLabel(end)
 			return nil
@@ -1613,8 +1609,8 @@ func CodeGen(info *buildInfo) ([]byte, *DebugInfo, error) {
 		return nil, nil, err
 	}
 
-	buf := c.prog.Bytes()
-	if err := c.writeJumps(buf); err != nil {
+	buf, err := c.writeJumps(c.prog.Bytes())
+	if err != nil {
 		return nil, nil, err
 	}
 	return buf, c.emitDebugInfo(buf), nil
@@ -1629,15 +1625,14 @@ func (c *codegen) resolveFuncDecls(f *ast.File, pkg *types.Package) {
 	}
 }
 
-func (c *codegen) writeJumps(b []byte) error {
+func (c *codegen) writeJumps(b []byte) ([]byte, error) {
 	ctx := vm.NewContext(b)
-	for op, _, err := ctx.Next(); err == nil && ctx.NextIP() < len(b); op, _, err = ctx.Next() {
+	var offsets []int
+	for op, _, err := ctx.Next(); err == nil && ctx.IP() < len(b); op, _, err = ctx.Next() {
 		switch op {
 		case opcode.JMP, opcode.JMPIFNOT, opcode.JMPIF, opcode.CALL,
 			opcode.JMPEQ, opcode.JMPNE,
 			opcode.JMPGT, opcode.JMPGE, opcode.JMPLE, opcode.JMPLT:
-			// Noop, assumed to be correct already. If you're fixing #905,
-			// make sure not to break "len" and "append" handling above.
 		case opcode.JMPL, opcode.JMPIFL, opcode.JMPIFNOTL,
 			opcode.JMPEQL, opcode.JMPNEL,
 			opcode.JMPGTL, opcode.JMPGEL, opcode.JMPLEL, opcode.JMPLTL,
@@ -1648,15 +1643,135 @@ func (c *codegen) writeJumps(b []byte) error {
 
 			index := binary.LittleEndian.Uint16(arg)
 			if int(index) > len(c.l) {
-				return fmt.Errorf("unexpected label number: %d (max %d)", index, len(c.l))
+				return nil, fmt.Errorf("unexpected label number: %d (max %d)", index, len(c.l))
 			}
 			offset := c.l[index] - nextIP + 5
 			if offset > math.MaxInt32 || offset < math.MinInt32 {
-				return fmt.Errorf("label offset is too big at the instruction %d: %d (max %d, min %d)",
+				return nil, fmt.Errorf("label offset is too big at the instruction %d: %d (max %d, min %d)",
 					nextIP-5, offset, math.MaxInt32, math.MinInt32)
 			}
+			if op != opcode.PUSHA && math.MinInt8 <= offset && offset <= math.MaxInt8 {
+				offsets = append(offsets, ctx.IP())
+			}
 			binary.LittleEndian.PutUint32(arg, uint32(offset))
 		}
 	}
-	return nil
+	// Correct function ip range.
+	// Note: indices are sorted in increasing order.
+	for _, f := range c.funcs {
+	loop:
+		for _, ind := range offsets {
+			switch {
+			case ind > int(f.rng.End):
+				break loop
+			case ind < int(f.rng.Start):
+				f.rng.Start -= longToShortRemoveCount
+				f.rng.End -= longToShortRemoveCount
+			case ind >= int(f.rng.Start):
+				f.rng.End -= longToShortRemoveCount
+			}
+		}
+	}
+	return shortenJumps(b, offsets), nil
+}
+
+// longToShortRemoveCount is a difference between short and long instruction sizes in bytes.
+const longToShortRemoveCount = 3
+
+// shortenJumps returns converts b to a program where all long JMP*/CALL* specified by absolute offsets,
+// are replaced with their corresponding short counterparts. It panics if either b or offsets are invalid.
+// This is done in 2 passes:
+// 1. Alter jump offsets taking into account parts to be removed.
+// 2. Perform actual removal of jump targets.
+// Note: after jump offsets altering, there can appear new candidates for conversion.
+// These are ignored for now.
+func shortenJumps(b []byte, offsets []int) []byte {
+	if len(offsets) == 0 {
+		return b
+	}
+
+	// 1. Alter existing jump offsets.
+	ctx := vm.NewContext(b)
+	for op, _, err := ctx.Next(); err == nil && ctx.IP() < len(b); op, _, err = ctx.Next() {
+		// we can't use arg returned by ctx.Next() because it is copied
+		nextIP := ctx.NextIP()
+		ip := ctx.IP()
+		switch op {
+		case opcode.JMP, opcode.JMPIFNOT, opcode.JMPIF, opcode.CALL,
+			opcode.JMPEQ, opcode.JMPNE,
+			opcode.JMPGT, opcode.JMPGE, opcode.JMPLE, opcode.JMPLT:
+			offset := int(int8(b[nextIP-1]))
+			offset += calcOffsetCorrection(ip, ip+offset, offsets)
+			b[nextIP-1] = byte(offset)
+		case opcode.JMPL, opcode.JMPIFL, opcode.JMPIFNOTL,
+			opcode.JMPEQL, opcode.JMPNEL,
+			opcode.JMPGTL, opcode.JMPGEL, opcode.JMPLEL, opcode.JMPLTL,
+			opcode.CALLL, opcode.PUSHA:
+			arg := b[nextIP-4:]
+			offset := int(int32(binary.LittleEndian.Uint32(arg)))
+			offset += calcOffsetCorrection(ip, ip+offset, offsets)
+			binary.LittleEndian.PutUint32(arg, uint32(offset))
+		}
+	}
+
+	// 2. Convert instructions.
+	copyOffset := 0
+	l := len(offsets)
+	b[offsets[0]] = toShortForm(b[offsets[0]])
+	for i := 0; i < l; i++ {
+		start := offsets[i] + 2
+		end := len(b)
+		if i != l-1 {
+			end = offsets[i+1] + 2
+			b[offsets[i+1]] = toShortForm(b[offsets[i+1]])
+		}
+		copy(b[start-copyOffset:], b[start+3:end])
+		copyOffset += longToShortRemoveCount
+	}
+	return b[:len(b)-copyOffset]
+}
+
+func calcOffsetCorrection(ip, target int, offsets []int) int {
+	cnt := 0
+	start := sort.Search(len(offsets), func(i int) bool {
+		return offsets[i] >= ip || offsets[i] >= target
+	})
+	for i := start; i < len(offsets) && (offsets[i] < target || offsets[i] <= ip); i++ {
+		ind := offsets[i]
+		if ip <= ind && ind < target ||
+			ind != ip && target <= ind && ind <= ip {
+			cnt += longToShortRemoveCount
+		}
+	}
+	if ip < target {
+		return -cnt
+	}
+	return cnt
+}
+
+func toShortForm(b byte) byte {
+	switch op := opcode.Opcode(b); op {
+	case opcode.JMPL:
+		return byte(opcode.JMP)
+	case opcode.JMPIFL:
+		return byte(opcode.JMPIF)
+	case opcode.JMPIFNOTL:
+		return byte(opcode.JMPIFNOT)
+	case opcode.JMPEQL:
+		return byte(opcode.JMPEQ)
+	case opcode.JMPNEL:
+		return byte(opcode.JMPNE)
+	case opcode.JMPGTL:
+		return byte(opcode.JMPGT)
+	case opcode.JMPGEL:
+		return byte(opcode.JMPGE)
+	case opcode.JMPLEL:
+		return byte(opcode.JMPLE)
+	case opcode.JMPLTL:
+		return byte(opcode.JMPLT)
+	case opcode.CALLL:
+		return byte(opcode.CALL)
+	default:
+		panic(fmt.Errorf("invalid opcode: %s", op))
+	}
 }
diff --git a/pkg/compiler/interop_test.go b/pkg/compiler/interop_test.go
index 073c1c2ec..5bcd269a2 100644
--- a/pkg/compiler/interop_test.go
+++ b/pkg/compiler/interop_test.go
@@ -221,7 +221,7 @@ func TestBuiltinDoesNotCompile(t *testing.T) {
 	ctx := v.Context()
 	retCount := 0
 	for op, _, err := ctx.Next(); err == nil; op, _, err = ctx.Next() {
-		if ctx.IP() > len(ctx.Program()) {
+		if ctx.IP() >= len(ctx.Program()) {
 			break
 		}
 		if op == opcode.RET {
diff --git a/pkg/compiler/jumps_test.go b/pkg/compiler/jumps_test.go
new file mode 100644
index 000000000..7f18a1c05
--- /dev/null
+++ b/pkg/compiler/jumps_test.go
@@ -0,0 +1,129 @@
+package compiler
+
+import (
+	"testing"
+
+	"github.com/nspcc-dev/neo-go/pkg/vm/opcode"
+	"github.com/stretchr/testify/require"
+)
+
+func testShortenJumps(t *testing.T, before, after []opcode.Opcode, indices []int) {
+	prog := make([]byte, len(before))
+	for i := range before {
+		prog[i] = byte(before[i])
+	}
+	raw := shortenJumps(prog, indices)
+	actual := make([]opcode.Opcode, len(raw))
+	for i := range raw {
+		actual[i] = opcode.Opcode(raw[i])
+	}
+	require.Equal(t, after, actual)
+}
+
+func TestShortenJumps(t *testing.T) {
+	testCases := map[opcode.Opcode]opcode.Opcode{
+		opcode.JMPL:      opcode.JMP,
+		opcode.JMPIFL:    opcode.JMPIF,
+		opcode.JMPIFNOTL: opcode.JMPIFNOT,
+		opcode.JMPEQL:    opcode.JMPEQ,
+		opcode.JMPNEL:    opcode.JMPNE,
+		opcode.JMPGTL:    opcode.JMPGT,
+		opcode.JMPGEL:    opcode.JMPGE,
+		opcode.JMPLEL:    opcode.JMPLE,
+		opcode.JMPLTL:    opcode.JMPLT,
+		opcode.CALLL:     opcode.CALL,
+	}
+	for op, sop := range testCases {
+		t.Run(op.String(), func(t *testing.T) {
+			before := []opcode.Opcode{
+				op, 6, 0, 0, 0, opcode.PUSH1, opcode.NOP, // <- first jump to here
+				op, 9, 12, 0, 0, opcode.PUSH1, opcode.NOP, // <- last jump to here
+				op, 255, 0, 0, 0, op, 0xFF - 5, 0xFF, 0xFF, 0xFF,
+			}
+			after := []opcode.Opcode{
+				sop, 3, opcode.PUSH1, opcode.NOP,
+				op, 3, 12, 0, 0, opcode.PUSH1, opcode.NOP,
+				sop, 249, sop, 0xFF - 2,
+			}
+			testShortenJumps(t, before, after, []int{0, 14, 19})
+		})
+	}
+	t.Run("NoReplace", func(t *testing.T) {
+		b := []byte{0, 1, 2, 3, 4, 5}
+		expected := []byte{0, 1, 2, 3, 4, 5}
+		require.Equal(t, expected, shortenJumps(b, nil))
+	})
+	t.Run("InvalidIndex", func(t *testing.T) {
+		before := []byte{byte(opcode.PUSH1), 0, 0, 0, 0}
+		require.Panics(t, func() {
+			shortenJumps(before, []int{0})
+		})
+	})
+	t.Run("SideConditions", func(t *testing.T) {
+		t.Run("Forward", func(t *testing.T) {
+			before := []opcode.Opcode{
+				opcode.JMPL, 5, 0, 0, 0,
+				opcode.JMPL, 5, 0, 0, 0,
+			}
+			after := []opcode.Opcode{
+				opcode.JMP, 2,
+				opcode.JMP, 2,
+			}
+			testShortenJumps(t, before, after, []int{0, 5})
+		})
+		t.Run("Backwards", func(t *testing.T) {
+			before := []opcode.Opcode{
+				opcode.JMPL, 5, 0, 0, 0,
+				opcode.JMPL, 0xFF - 4, 0xFF, 0xFF, 0xFF,
+				opcode.JMPL, 0xFF - 4, 0xFF, 0xFF, 0xFF,
+			}
+			after := []opcode.Opcode{
+				opcode.JMPL, 5, 0, 0, 0,
+				opcode.JMP, 0xFF - 4,
+				opcode.JMP, 0xFF - 1,
+			}
+			testShortenJumps(t, before, after, []int{5, 10})
+		})
+	})
+}
+
+func TestWriteJumps(t *testing.T) {
+	c := new(codegen)
+	c.l = []int{10}
+	before := []byte{
+		byte(opcode.NOP), byte(opcode.JMP), 2, byte(opcode.RET),
+		byte(opcode.CALLL), 0, 0, 0, 0, byte(opcode.RET),
+		byte(opcode.PUSH2), byte(opcode.RET),
+	}
+	c.funcs = map[string]*funcScope{
+		"init":   {rng: DebugRange{Start: 0, End: 3}},
+		"main":   {rng: DebugRange{Start: 4, End: 9}},
+		"method": {rng: DebugRange{Start: 10, End: 11}},
+	}
+
+	expProg := []byte{
+		byte(opcode.NOP), byte(opcode.JMP), 2, byte(opcode.RET),
+		byte(opcode.CALL), 3, byte(opcode.RET),
+		byte(opcode.PUSH2), byte(opcode.RET),
+	}
+	expFuncs := map[string]*funcScope{
+		"init":   {rng: DebugRange{Start: 0, End: 3}},
+		"main":   {rng: DebugRange{Start: 4, End: 6}},
+		"method": {rng: DebugRange{Start: 7, End: 8}},
+	}
+
+	buf, err := c.writeJumps(before)
+	require.NoError(t, err)
+	require.Equal(t, expProg, buf)
+	require.Equal(t, expFuncs, c.funcs)
+}
+
+func TestWriteJumpsLastJump(t *testing.T) {
+	c := new(codegen)
+	c.l = []int{2}
+	prog := []byte{byte(opcode.JMP), 3, byte(opcode.RET), byte(opcode.JMPL), 0, 0, 0, 0}
+	expected := []byte{byte(opcode.JMP), 3, byte(opcode.RET), byte(opcode.JMP), 0xFF}
+	actual, err := c.writeJumps(prog)
+	require.NoError(t, err)
+	require.Equal(t, expected, actual)
+}
diff --git a/pkg/vm/cli/cli.go b/pkg/vm/cli/cli.go
index a5fc1b060..61e00d585 100644
--- a/pkg/vm/cli/cli.go
+++ b/pkg/vm/cli/cli.go
@@ -433,8 +433,8 @@ func handleOps(c *ishell.Context) {
 }
 
 func changePrompt(c ishell.Actions, v *vm.VM) {
-	if v.Ready() && v.Context().IP()-1 >= 0 {
-		c.SetPrompt(fmt.Sprintf("NEO-GO-VM %d > ", v.Context().IP()-1))
+	if v.Ready() && v.Context().IP() >= 0 {
+		c.SetPrompt(fmt.Sprintf("NEO-GO-VM %d > ", v.Context().IP()))
 	} else {
 		c.SetPrompt("NEO-GO-VM > ")
 	}
diff --git a/pkg/vm/context.go b/pkg/vm/context.go
index f2cf01ab1..79893d299 100644
--- a/pkg/vm/context.go
+++ b/pkg/vm/context.go
@@ -141,11 +141,9 @@ func (c *Context) Next() (opcode.Opcode, []byte, error) {
 	return instr, parameter, nil
 }
 
-// IP returns the absolute instruction without taking 0 into account.
-// If that program starts the ip = 0 but IP() will return 1, cause its
-// the first instruction.
+// IP returns current instruction offset in the context script.
 func (c *Context) IP() int {
-	return c.ip + 1
+	return c.ip
 }
 
 // LenInstr returns the number of instructions loaded.