Most approaches in predicting protein function from protein-protein interaction data utilize the observation that a protein often share functions with proteins that interacts with it (its level-1 neighbours). However, proteins that interact with the same proteins (i.e. level-2 neighbours) may also have a greater likelihood of sharing similar physical or biochemical characteristics. We speculate that functional similarity between a protein and its neighbours from the two different levels arise from two distinct forms of functional association, and a protein is likely to share functions with its level-1 and/or level-2 neighbours. We are interested in finding out how significant is functional association between level-2 neighbours and how they can be exploited for protein function prediction.