diff --git a/packages/nuxt/src/app/components/nuxt-island.ts b/packages/nuxt/src/app/components/nuxt-island.ts
index 3f8bfd3876..e2990cfed6 100644
--- a/packages/nuxt/src/app/components/nuxt-island.ts
+++ b/packages/nuxt/src/app/components/nuxt-island.ts
@@ -29,6 +29,7 @@ export default defineComponent({
       type: String,
       required: true
     },
+    lazy: Boolean,
     props: {
       type: Object,
       default: () => undefined
@@ -66,7 +67,7 @@ export default defineComponent({
       }
     }
 
-    const ssrHTML = ref('<div></div>')
+    const ssrHTML = ref<string>('')
     if (process.client) {
       const renderedHTML = getFragmentHTML(instance.vnode?.el ?? null).join('')
       if (renderedHTML && nuxtApp.isHydrating) {
@@ -79,7 +80,7 @@ export default defineComponent({
           }
         })
       }
-      ssrHTML.value = renderedHTML ?? '<div></div>'
+      ssrHTML.value = renderedHTML
     }
     const slotProps = computed(() => getSlotProps(ssrHTML.value))
     const uid = ref<string>(ssrHTML.value.match(SSR_UID_RE)?.[1] ?? randomUUID())
@@ -165,18 +166,19 @@ export default defineComponent({
       watch(props, debounce(() => fetchComponent(), 100))
     }
 
-    // TODO: allow lazy loading server islands
-    if (process.server || !nuxtApp.isHydrating) {
+    if (process.client && !nuxtApp.isHydrating && props.lazy) {
+      fetchComponent()
+    } else if (process.server || !nuxtApp.isHydrating) {
       await fetchComponent()
     }
 
     return () => {
-      if (error.value && slots.fallback) {
+      if ((!html.value || error.value) && slots.fallback) {
         return [slots.fallback({ error: error.value })]
       }
       const nodes = [createVNode(Fragment, {
         key: key.value
-      }, [h(createStaticVNode(html.value, 1))])]
+      }, [h(createStaticVNode(html.value || '<div></div>', 1))])]
       if (uid.value && (mounted.value || nuxtApp.isHydrating || process.server)) {
         for (const slot in slots) {
           if (availableSlots.value.includes(slot)) {
diff --git a/packages/nuxt/src/components/runtime/server-component.ts b/packages/nuxt/src/components/runtime/server-component.ts
index 4dcfa8cce5..777204209e 100644
--- a/packages/nuxt/src/components/runtime/server-component.ts
+++ b/packages/nuxt/src/components/runtime/server-component.ts
@@ -5,9 +5,11 @@ export const createServerComponent = (name: string) => {
   return defineComponent({
     name,
     inheritAttrs: false,
-    setup (_props, { attrs, slots }) {
+    props: { lazy: Boolean },
+    setup (props, { attrs, slots }) {
       return () => h(NuxtIsland, {
         name,
+        lazy: props.lazy,
         props: attrs
       }, slots)
     }
diff --git a/test/basic.test.ts b/test/basic.test.ts
index 06968d32ab..879bc8c886 100644
--- a/test/basic.test.ts
+++ b/test/basic.test.ts
@@ -1419,6 +1419,43 @@ describe('server components/islands', () => {
     await page.close()
   })
 
+  it('lazy server components', async () => {
+    const page = await createPage('/server-components/lazy/start')
+    await page.waitForLoadState('networkidle')
+    await page.getByText('Go to page with lazy server component').click()
+
+    const text = await page.innerText('pre')
+    expect(text).toMatchInlineSnapshot('" End page <pre></pre><section id=\\"fallback\\"> Loading server component </section><section id=\\"no-fallback\\"><div></div></section>"')
+    expect(text).not.toContain('async component that was very long')
+    expect(text).toContain('Loading server component')
+
+    // Wait for all pending micro ticks to be cleared
+    // await page.waitForLoadState('networkidle')
+    // await page.evaluate(() => new Promise(resolve => setTimeout(resolve, 10)))
+    await page.waitForFunction(() => (document.querySelector('#no-fallback') as HTMLElement)?.innerText?.includes('async component'))
+    await page.waitForFunction(() => (document.querySelector('#fallback') as HTMLElement)?.innerText?.includes('async component'))
+
+    await page.close()
+  })
+
+  it('non-lazy server components', async () => {
+    const page = await createPage('/server-components/lazy/start')
+    await page.waitForLoadState('networkidle')
+    await page.getByText('Go to page without lazy server component').click()
+
+    const text = await page.innerText('pre')
+    expect(text).toMatchInlineSnapshot('" End page <pre></pre><section id=\\"fallback\\"><div nuxt-ssr-component-uid=\\"0\\"> This is a .server (20ms) async component that was very long ... <div id=\\"async-server-component-count\\">42</div><div style=\\"display:contents;\\" nuxt-ssr-slot-name=\\"default\\"></div></div></section><section id=\\"no-fallback\\"><div nuxt-ssr-component-uid=\\"1\\"> This is a .server (20ms) async component that was very long ... <div id=\\"async-server-component-count\\">42</div><div style=\\"display:contents;\\" nuxt-ssr-slot-name=\\"default\\"></div></div></section>"')
+    expect(text).toContain('async component that was very long')
+
+    // Wait for all pending micro ticks to be cleared
+    // await page.waitForLoadState('networkidle')
+    // await page.evaluate(() => new Promise(resolve => setTimeout(resolve, 10)))
+    await page.waitForFunction(() => (document.querySelector('#no-fallback') as HTMLElement)?.innerText?.includes('async component'))
+    await page.waitForFunction(() => (document.querySelector('#fallback') as HTMLElement)?.innerText?.includes('async component'))
+
+    await page.close()
+  })
+
   it.skipIf(isDev)('should allow server-only components to set prerender hints', async () => {
     // @ts-expect-error ssssh! untyped secret property
     const publicDir = useTestContext().nuxt._nitro.options.output.publicDir
diff --git a/test/fixtures/basic/pages/server-components/lazy/end.vue b/test/fixtures/basic/pages/server-components/lazy/end.vue
new file mode 100644
index 0000000000..7009c1e7ac
--- /dev/null
+++ b/test/fixtures/basic/pages/server-components/lazy/end.vue
@@ -0,0 +1,26 @@
+<script setup lang="ts">
+const page = ref<HTMLDivElement | undefined>()
+const mountedHTML = ref()
+onMounted(() => {
+  mountedHTML.value = page.value?.innerHTML
+})
+
+const lazy = useRoute().query.lazy === 'true'
+</script>
+
+<template>
+  <div ref="page" class="end-page">
+    End page
+    <pre>{{ mountedHTML }}</pre>
+    <section id="fallback">
+      <AsyncServerComponent :lazy="lazy" :count="42">
+        <template #fallback>
+          Loading server component
+        </template>
+      </AsyncServerComponent>
+    </section>
+    <section id="no-fallback">
+      <AsyncServerComponent :lazy="lazy" :count="42" />
+    </section>
+  </div>
+</template>
diff --git a/test/fixtures/basic/pages/server-components/lazy/start.vue b/test/fixtures/basic/pages/server-components/lazy/start.vue
new file mode 100644
index 0000000000..a14cf6eada
--- /dev/null
+++ b/test/fixtures/basic/pages/server-components/lazy/start.vue
@@ -0,0 +1,10 @@
+<template>
+  <div>
+    <NuxtLink to="/server-components/lazy/end?lazy=true">
+      Go to page with lazy server component
+    </NuxtLink>
+    <NuxtLink to="/server-components/lazy/end?lazy=false">
+      Go to page without lazy server component
+    </NuxtLink>
+  </div>
+</template>