A growing body of literature suggests that feedback modulation of early visual processing is ubiquitous and central to cortical computation. In particular stimuli with high-level content that invariably activate ventral object responsive regions have been shown to suppress early visual cortex. This suppression was typically interpreted in the framework of predictive coding and feedback from ventral regions. Here we examined early visual modulation during perception of a bistable Gestalt illusion that has previously been shown to be mediated by dorsal parietal cortex rather than by ventral regions that were not activated. The bistable dynamic stimulus consisted of moving dots that could either be perceived as corners of a large moving cube (global Gestalt) or as distributed sets of locally moving elements. We found that perceptual binding of local moving elements into an illusory Gestalt led to spatially segregated differential modulations in both, V1 and V2: representations of illusory lines and foreground were enhanced, while inducers and background were suppressed. Furthermore, correlation analyses suggest that distinct mechanisms govern fore- and background modulation. Our results demonstrate that motion-induced Gestalt perception differentially modulates early visual cortex in the absence of ventral stream activation.