Nearby flanking bars degrade letter identification and resolution, a phenomenon known as contour interaction. However, many previous studies found that the relationship between foveal letter identification and flanker separation is non-monotonic, with an upturn in performance at very small target-to-flanker separations. Here, we replicate this observation and show that a similar upturn occurs also for targets presented at 5 deg in the inferior field, if the target-to-flanker separation is sufficiently small. The presence and magnitude of the observed performance upturn depends on the flanking-bar width, being more evident for narrower compared to wider flanking bars. We interpret our results to indicate that neural interactions between nearby contours reduce performance when the target and flanking bars form discrete neural images. At sufficiently small separations, the images of the target and flanking bars can not be distinguished and performance is governed by the contrast of the target in the blended neural image.