diff --git a/packages/nuxt/src/app/components/client-only.ts b/packages/nuxt/src/app/components/client-only.ts
index 5483dbe0c6..0a8472109c 100644
--- a/packages/nuxt/src/app/components/client-only.ts
+++ b/packages/nuxt/src/app/components/client-only.ts
@@ -1,5 +1,6 @@
 import { cloneVNode, createElementBlock, createStaticVNode, defineComponent, getCurrentInstance, h, onMounted, provide, ref } from 'vue'
 import type { ComponentInternalInstance, ComponentOptions, InjectionKey } from 'vue'
+import { isPromise } from '@vue/shared'
 import { useNuxtApp } from '../nuxt'
 import { getFragmentHTML } from './utils'
 
@@ -42,9 +43,10 @@ export function createClientOnly<T extends ComponentOptions> (component: T) {
   const clone = { ...component }
 
   if (clone.render) {
-    // override the component render (non script setup component)
+    // override the component render (non script setup component) or dev mode
     clone.render = (ctx: any, cache: any, $props: any, $setup: any, $data: any, $options: any) => {
-      if ($setup.mounted$ ?? ctx.mounted$) {
+      // import.meta.client for server-side treeshakking
+      if (import.meta.client && ($setup.mounted$ ?? ctx.mounted$)) {
         const res = component.render?.bind(ctx)(ctx, cache, $props, $setup, $data, $options)
         return (res.children === null || typeof res.children === 'string')
           ? cloneVNode(res)
@@ -63,33 +65,39 @@ export function createClientOnly<T extends ComponentOptions> (component: T) {
   }
 
   clone.setup = (props, ctx) => {
+    const nuxtApp = useNuxtApp()
+    const mounted$ = ref(import.meta.client && nuxtApp.isHydrating === false)
     const instance = getCurrentInstance()!
 
-    const attrs = { ...instance.attrs }
+    if (import.meta.server || nuxtApp.isHydrating) {
+      const attrs = { ...instance.attrs }
+      // remove existing directives during hydration
+      const directives = extractDirectives(instance)
+      // prevent attrs inheritance since a staticVNode is rendered before hydration
+      for (const key in attrs) {
+        delete instance.attrs[key]
+      }
 
-    // remove existing directives during hydration
-    const directives = extractDirectives(instance)
-    // prevent attrs inheritance since a staticVNode is rendered before hydration
-    for (const key in attrs) {
-      delete instance.attrs[key]
+      onMounted(() => {
+        Object.assign(instance.attrs, attrs)
+        instance.vnode.dirs = directives
+      })
     }
-    const mounted$ = ref(false)
 
     onMounted(() => {
-      Object.assign(instance.attrs, attrs)
-      instance.vnode.dirs = directives
       mounted$.value = true
     })
+    const setupState = component.setup?.(props, ctx) || {}
 
-    return Promise.resolve(component.setup?.(props, ctx) || {})
-      .then((setupState) => {
+    if (isPromise(setupState)) {
+      return Promise.resolve(setupState).then((setupState) => {
         if (typeof setupState !== 'function') {
           setupState = setupState || {}
           setupState.mounted$ = mounted$
           return setupState
         }
         return (...args: any[]) => {
-          if (mounted$.value) {
+          if (import.meta.client && (mounted$.value || !nuxtApp.isHydrating)) {
             const res = setupState(...args)
             return (res.children === null || typeof res.children === 'string')
               ? cloneVNode(res)
@@ -100,6 +108,20 @@ export function createClientOnly<T extends ComponentOptions> (component: T) {
           }
         }
       })
+    } else {
+      if (typeof setupState === 'function') {
+        return (...args: any[]) => {
+          if (mounted$.value) {
+            return h(setupState(...args), ctx.attrs)
+          }
+          const fragment = getFragmentHTML(instance?.vnode.el ?? null) ?? ['<div></div>']
+          return import.meta.client
+            ? createStaticVNode(fragment.join(''), fragment.length) :
+            h('div', ctx.attrs)
+        }
+      }
+      return Object.assign(setupState, { mounted$ })
+    }
   }
 
   cache.set(component, clone)
diff --git a/test/basic.test.ts b/test/basic.test.ts
index 0c756211e0..8834c138dd 100644
--- a/test/basic.test.ts
+++ b/test/basic.test.ts
@@ -392,12 +392,14 @@ describe('pages', () => {
     expect(await page.locator('.client-only-script button').innerHTML()).toContain('2')
     expect(await page.locator('.string-stateful-script').innerHTML()).toContain('1')
     expect(await page.locator('.string-stateful').innerHTML()).toContain('1')
+    const waitForConsoleLog = page.waitForEvent('console', consoleLog => consoleLog.text() === 'has $el')
 
     // ensure directives are reactive
     await page.locator('button#show-all').click()
     await Promise.all(hiddenSelectors.map(selector => page.locator(selector).isVisible()))
       .then(results => results.forEach(isVisible => expect(isVisible).toBeTruthy()))
 
+    await waitForConsoleLog
     expect(pageErrors).toEqual([])
     await page.close()
     // don't expect any errors or warning on client-side navigation
diff --git a/test/fixtures/basic/components/WrapClientComponent.vue b/test/fixtures/basic/components/WrapClientComponent.vue
new file mode 100644
index 0000000000..3aebe022b9
--- /dev/null
+++ b/test/fixtures/basic/components/WrapClientComponent.vue
@@ -0,0 +1,16 @@
+<template>
+  <div>
+    <ClientSetupScript
+      ref="clientSetupScript"
+      class="client-only-script-setup"
+      foo="hello"
+    />
+  </div>
+</template>
+
+<script setup lang="ts">
+const clientSetupScript = ref<{ $el: HTMLElement }>()
+onMounted(() => {
+  console.log(clientSetupScript.value?.$el as HTMLElement ? 'has $el' : 'no $el')
+})
+</script>
diff --git a/test/fixtures/basic/pages/client-only-components.vue b/test/fixtures/basic/pages/client-only-components.vue
index d353cf81ca..c6b69dfcda 100644
--- a/test/fixtures/basic/pages/client-only-components.vue
+++ b/test/fixtures/basic/pages/client-only-components.vue
@@ -59,6 +59,7 @@
       class="no-state-hidden"
     />
 
+    <WrapClientComponent v-if="show" />
     <button
       class="test-ref-1"
       @click="stringStatefulComp.add"
@@ -94,16 +95,14 @@
 </template>
 
 <script setup lang="ts">
-import type { Ref } from 'vue'
 // bypass client import protection to ensure this is treeshaken from .client components
 import BreaksServer from '~~/components/BreaksServer.client'
 
-type Comp = Ref<{ add: () => void }>
-
-const stringStatefulComp = ref(null) as any as Comp
-const stringStatefulScriptComp = ref(null) as any as Comp
-const clientScript = ref(null) as any as Comp
-const clientSetupScript = ref(null) as any as Comp
+type Comp = { add: () => void }
+const stringStatefulComp = ref<Comp>(null)
+const stringStatefulScriptComp = ref<Comp>(null)
+const clientScript = ref<Comp>(null)
+const clientSetupScript = ref<Comp>(null)
 const BreakServerComponent = defineAsyncComponent(() => {
   return import('./../components/BreaksServer.client')
 })