"Error 46 It is an error to use a section registered as allowDefinition='MachineToApplication' beyond application level. ..."
Clear build and rebuild didn't help. Deleting all files in Bin folder did help! :)
When you are sick of deleting bin folder, just simple add folowing tag to *.csproj:
<Target Name="AfterBuild" Condition="'$(Configuration)'=='Release'">
<RemoveDir Directories="$(IntermediateOutputPath)" />
</Target>
Source:
http://stackoverflow.com/questions/7388359/mvc3-project-build-fails-because-of-web-config-in-obj-folder