diff --git a/packages/@vue/cli-service/lib/commands/build/resolveLibConfig.js b/packages/@vue/cli-service/lib/commands/build/resolveLibConfig.js
index 4b772ec63..0d1780cf7 100644
--- a/packages/@vue/cli-service/lib/commands/build/resolveLibConfig.js
+++ b/packages/@vue/cli-service/lib/commands/build/resolveLibConfig.js
@@ -2,9 +2,6 @@ const fs = require('fs')
 const path = require('path')
 
 module.exports = (api, { entry, name }, options) => {
-  // inline all static asset files since there is no publicPath handling
-  process.env.VUE_CLI_INLINE_LIMIT = Infinity
-
   const { log, error } = require('@vue/cli-shared-utils')
   const abort = msg => {
     log()
diff --git a/packages/@vue/cli-service/lib/config/css.js b/packages/@vue/cli-service/lib/config/css.js
index 2b86a6503..c935df330 100644
--- a/packages/@vue/cli-service/lib/config/css.js
+++ b/packages/@vue/cli-service/lib/config/css.js
@@ -33,12 +33,15 @@ module.exports = (api, options) => {
     }, extract && typeof extract === 'object' ? extract : {})
 
     // use relative publicPath in extracted CSS based on extract location
-    const cssPublicPath = '../'.repeat(
-      extractOptions.filename
-        .replace(/^\.[\/\\]/, '')
-        .split(/[\/\\]/g)
-        .length - 1
-    )
+    const cssPublicPath = process.env.VUE_CLI_BUILD_TARGET === 'lib'
+      // in lib mode, CSS is extracted to dist root.
+      ? './'
+      : '../'.repeat(
+        extractOptions.filename
+            .replace(/^\.[\/\\]/, '')
+            .split(/[\/\\]/g)
+            .length - 1
+      )
 
     // check if the project has a valid postcss config
     // if it doesn't, don't use postcss-loader for direct style imports