Yes, classes can be declared inside interfaces. This technique is sometimes used where the class is a constant type, return value or method argument in the interface. When a class is closely associated with the use of an interface it is convenient to declare it in the same compilation unit. This proximity also helps ensure that implementation changes to either are mutually compatible.

A class defined inside an interface is implicitly public static and operates as a top level class. The static modifier does not have the same effect on a nested class as it does with class variables and methods.

A class is defined inside an interface to bind the interface to a TYPE.

public interface A {
    class B {
    }
}