Index: wp-includes/js/tinymce/plugins/wordpress/plugin.js
===================================================================
--- wp-includes/js/tinymce/plugins/wordpress/plugin.js	(revision 27533)
+++ wp-includes/js/tinymce/plugins/wordpress/plugin.js	(working copy)
@@ -143,9 +143,12 @@
 
 					if ( parent.nodeName === 'P' && parent.childNodes.length > 1 ) {
 						p = editor.dom.create('p');
-						parent.parentNode.insertBefore( p, parent );
+						// insert new <p> tag before current node
+						parent.insertBefore( p, node );
+						// move node into <p> node
 						p.appendChild( node );
 					}
+
 				});
 			}
 		}