diff --git a/packages/nuxt/src/app/components/client-only.mjs b/packages/nuxt/src/app/components/client-only.mjs
index 3e0cf41bdd6..e6530f74298 100644
--- a/packages/nuxt/src/app/components/client-only.mjs
+++ b/packages/nuxt/src/app/components/client-only.mjs
@@ -1,4 +1,4 @@
-import { ref, onMounted, defineComponent, createElementBlock, h, Fragment } from 'vue'
+import { ref, onMounted, defineComponent, createElementBlock, h, createElementVNode } from 'vue'
 
 export default defineComponent({
   name: 'ClientOnly',
@@ -30,9 +30,14 @@ export function createClientOnly (component) {
   if (clone.render) {
     // override the component render (non script setup component)
     clone.render = (ctx, ...args) => {
-      return ctx.mounted$
-        ? h(Fragment, ctx.$attrs ?? ctx._.attrs, component.render(ctx, ...args))
-        : h('div', ctx.$attrs ?? ctx._.attrs)
+      if (ctx.mounted$) {
+        const res = component.render(ctx, ...args)
+        return (res.children === null || typeof res.children === 'string')
+          ? createElementVNode(res.type, res.props, res.children, res.patchFlag, res.dynamicProps, res.shapeFlag)
+          : h(res)
+      } else {
+        return h('div', ctx.$attrs ?? ctx._.attrs)
+      }
     }
   } else if (clone.template) {
     // handle runtime-compiler template
@@ -51,10 +56,14 @@ export function createClientOnly (component) {
         return typeof setupState !== 'function'
           ? { ...setupState, mounted$ }
           : (...args) => {
-              return mounted$.value
-                // use Fragment to avoid oldChildren is null issue
-                ? h(Fragment, ctx.attrs, setupState(...args))
-                : h('div', ctx.attrs)
+              if (mounted$.value) {
+                const res = setupState(...args)
+                return (res.children === null || typeof res.children === 'string')
+                  ? createElementVNode(res.type, res.props, res.children, res.patchFlag, res.dynamicProps, res.shapeFlag)
+                  : h(res)
+              } else {
+                return h('div', ctx.attrs)
+              }
             }
       })
   }
diff --git a/test/basic.test.ts b/test/basic.test.ts
index 2fe9c019dba..cf143ddfe76 100644
--- a/test/basic.test.ts
+++ b/test/basic.test.ts
@@ -145,12 +145,74 @@ describe('pages', () => {
 
   it('/client-only-components', async () => {
     const html = await $fetch('/client-only-components')
+    // ensure fallbacks with classes and arbitrary attributes are rendered
     expect(html).toContain('<div class="client-only-script" foo="bar">')
     expect(html).toContain('<div class="client-only-script-setup" foo="hello">')
     expect(html).toContain('<div>Fallback</div>')
+    // ensure components are not rendered server-side
     expect(html).not.toContain('Should not be server rendered')
 
     await expectNoClientErrors('/client-only-components')
+
+    const page = await createPage('/client-only-components')
+
+    await page.waitForLoadState('networkidle')
+
+    const hiddenSelectors = [
+      '.string-stateful-should-be-hidden',
+      '.client-script-should-be-hidden',
+      '.string-stateful-script-should-be-hidden',
+      '.no-state-hidden'
+    ]
+    const visibleSelectors = [
+      '.string-stateful',
+      '.string-stateful-script',
+      '.client-only-script',
+      '.client-only-script-setup',
+      '.no-state'
+    ]
+    // ensure directives are correctly applied
+    await Promise.all(hiddenSelectors.map(selector => page.locator(selector).isHidden()))
+      .then(results => results.forEach(isHidden => expect(isHidden).toBeTruthy()))
+    // ensure hidden components are still rendered
+    await Promise.all(hiddenSelectors.map(selector => page.locator(selector).innerHTML()))
+      .then(results => results.forEach(innerHTML => expect(innerHTML).not.toBe('')))
+
+    // ensure single root node components are rendered once on client (should not be empty)
+    await Promise.all(visibleSelectors.map(selector => page.locator(selector).innerHTML()))
+      .then(results => results.forEach(innerHTML => expect(innerHTML).not.toBe('')))
+
+    // ensure multi-root-node is correctly rendered
+    expect(await page.locator('.multi-root-node-count').innerHTML()).toContain('0')
+    expect(await page.locator('.multi-root-node-button').innerHTML()).toContain('add 1 to count')
+    expect(await page.locator('.multi-root-node-script-count').innerHTML()).toContain('0')
+    expect(await page.locator('.multi-root-node-script-button').innerHTML()).toContain('add 1 to count')
+
+    // ensure components reactivity
+    await page.locator('.multi-root-node-button').click()
+    await page.locator('.multi-root-node-script-button').click()
+    await page.locator('.client-only-script button').click()
+    await page.locator('.client-only-script-setup button').click()
+
+    expect(await page.locator('.multi-root-node-count').innerHTML()).toContain('1')
+    expect(await page.locator('.multi-root-node-script-count').innerHTML()).toContain('1')
+    expect(await page.locator('.client-only-script-setup button').innerHTML()).toContain('1')
+    expect(await page.locator('.client-only-script button').innerHTML()).toContain('1')
+
+    // ensure components ref is working and reactive
+    await page.locator('button.test-ref-1').click()
+    await page.locator('button.test-ref-2').click()
+    await page.locator('button.test-ref-3').click()
+    await page.locator('button.test-ref-4').click()
+    expect(await page.locator('.client-only-script-setup button').innerHTML()).toContain('2')
+    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')
+
+    // 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()))
   })
 })
 
diff --git a/test/fixtures/basic/components/client/MultiRootNode.client.vue b/test/fixtures/basic/components/client/MultiRootNode.client.vue
new file mode 100644
index 00000000000..247ad18db1a
--- /dev/null
+++ b/test/fixtures/basic/components/client/MultiRootNode.client.vue
@@ -0,0 +1,14 @@
+<template>
+  <div v-bind="$attrs" class="multi-root-node-count">
+    {{ count }}
+  </div>
+  <button class="multi-root-node-button" @click="add">
+    add 1 to count
+  </button>
+</template>
+
+<script setup>
+const count = ref(0)
+
+const add = () => count.value++
+</script>
diff --git a/test/fixtures/basic/components/client/MultiRootNodeScript.client.vue b/test/fixtures/basic/components/client/MultiRootNodeScript.client.vue
new file mode 100644
index 00000000000..67ed503ca3d
--- /dev/null
+++ b/test/fixtures/basic/components/client/MultiRootNodeScript.client.vue
@@ -0,0 +1,19 @@
+<template>
+  <div v-bind="$attrs" class="multi-root-node-script-count">
+    {{ count }}
+  </div>
+  <button class="multi-root-node-script-button" @click="add">
+    add 1 to count
+  </button>
+</template>
+
+<script>
+export default defineNuxtComponent({
+  setup () {
+    const count = ref(0)
+
+    const add = () => count.value++
+    return { count, add }
+  }
+})
+</script>
diff --git a/test/fixtures/basic/components/client/NoState.client.vue b/test/fixtures/basic/components/client/NoState.client.vue
new file mode 100644
index 00000000000..92f3b3e3bec
--- /dev/null
+++ b/test/fixtures/basic/components/client/NoState.client.vue
@@ -0,0 +1,3 @@
+<template>
+  <div>Hello world !</div>
+</template>
diff --git a/test/fixtures/basic/components/client/Script.client.vue b/test/fixtures/basic/components/client/Script.client.vue
new file mode 100644
index 00000000000..86767ad9378
--- /dev/null
+++ b/test/fixtures/basic/components/client/Script.client.vue
@@ -0,0 +1,45 @@
+<script lang="ts">
+export default defineNuxtComponent({
+  name: 'ClientScript',
+  props: {
+    foo: {
+      type: String
+    }
+  },
+  setup (_p, ctx) {
+    const count = ref(0)
+    const add = () => count.value++
+
+    ctx.expose({ add })
+
+    return {
+      count,
+      add
+    }
+  }
+})
+</script>
+
+<template>
+  <div>
+    <div class="client-only-css">
+      client only script component {{ foo }}
+    </div>
+    <button @click="add">
+      {{ count }}
+    </button>
+    <slot name="test" />
+  </div>
+</template>
+
+<style>
+:root {
+  --client-only: "client-only";
+}
+</style>
+
+<style scoped>
+.client-only-css {
+  color: rgb(50, 50, 50);
+}
+</style>
diff --git a/test/fixtures/basic/components/client/SetupScript.client.vue b/test/fixtures/basic/components/client/SetupScript.client.vue
new file mode 100644
index 00000000000..becd6eb01e6
--- /dev/null
+++ b/test/fixtures/basic/components/client/SetupScript.client.vue
@@ -0,0 +1,18 @@
+<script setup lang="ts">
+const props = defineProps<{ foo: string }>()
+const count = ref(0)
+const add = () => count.value++
+
+defineExpose({ add })
+</script>
+
+<template>
+  <div>
+    <div>client only script setup component {{ props.foo }}</div>
+    <button @click="add">
+      {{ count }}
+    </button>
+
+    <slot name="test" />
+  </div>
+</template>
diff --git a/test/fixtures/basic/components/client/StringChildStateful.client.vue b/test/fixtures/basic/components/client/StringChildStateful.client.vue
new file mode 100644
index 00000000000..16b39a204a7
--- /dev/null
+++ b/test/fixtures/basic/components/client/StringChildStateful.client.vue
@@ -0,0 +1,14 @@
+<script setup lang="ts">
+const state = ref(0)
+
+const add = () => state.value++
+
+defineExpose({
+  state,
+  add
+})
+</script>
+
+<template>
+  <div>Hi i should be rendered {{ state }}</div>
+</template>
diff --git a/test/fixtures/basic/components/client/StringChildStatefulScript.client.vue b/test/fixtures/basic/components/client/StringChildStatefulScript.client.vue
new file mode 100644
index 00000000000..b87df7c74da
--- /dev/null
+++ b/test/fixtures/basic/components/client/StringChildStatefulScript.client.vue
@@ -0,0 +1,18 @@
+<script lang="ts">
+export default defineNuxtComponent({
+  setup (_p, ctx) {
+    const state = ref(0)
+
+    const add = () => state.value++
+
+    ctx.expose({ add, state })
+    return {
+      state
+    }
+  }
+})
+</script>
+
+<template>
+  <div>Hi i should be rendered {{ state }}</div>
+</template>
diff --git a/test/fixtures/basic/pages/client-only-components.vue b/test/fixtures/basic/pages/client-only-components.vue
index f020ea1cfc1..e5e1094a92e 100644
--- a/test/fixtures/basic/pages/client-only-components.vue
+++ b/test/fixtures/basic/pages/client-only-components.vue
@@ -1,18 +1,67 @@
 <template>
   <div>
-    <ClientOnlyScript class="client-only-script" foo="bar" />
-    <ClientOnlySetupScript class="client-only-script-setup" foo="hello">
+    <ClientScript ref="clientScript" class="client-only-script" foo="bar" />
+    <ClientSetupScript
+      ref="clientSetupScript"
+      class="client-only-script-setup"
+      foo="hello"
+    >
       <template #test>
         <div class="slot-test">
           Hello
         </div>
       </template>
-    </ClientOnlySetupScript>
+    </ClientSetupScript>
     <ClientOnly>
       Should not be server rendered.
       <template #fallback>
         <div>Fallback</div>
       </template>
     </ClientOnly>
+    <!-- ensure multi root node components are correctly rendered (Fragment) -->
+    <ClientMultiRootNode class="multi-root-node" />
+    <ClientMultiRootNodeScript class="multi-root-node-script" />
+
+    <!-- ensure components with a single single child are correctly rendered -->
+    <ClientStringChildStateful ref="stringStatefulComp" class="string-stateful" />
+    <ClientStringChildStatefulScript
+      ref="stringStatefulScriptComp"
+      class="string-stateful-script"
+    />
+    <ClientNoState class="no-state" />
+    <!-- ensure directives are correctly passed -->
+    <ClientStringChildStateful v-show="show" class="string-stateful-should-be-hidden" />
+    <ClientSetupScript v-show="show" class="client-script-should-be-hidden" foo="bar" />
+    <ClientStringChildStatefulScript
+      v-show="show"
+      class="string-stateful-script-should-be-hidden"
+    />
+    <ClientNoState v-show="show" class="no-state-hidden" />
+
+    <button class="test-ref-1" @click="stringStatefulComp.add">
+      increment count
+    </button>
+    <button class="test-ref-2" @click="stringStatefulScriptComp.add">
+      increment count
+    </button>
+    <button class="test-ref-3" @click="clientScript.add">
+      increment count
+    </button>
+    <button class="test-ref-4" @click="clientSetupScript.add">
+      increment count
+    </button>
+
+    <button id="show-all" @click="show = true">
+      Show all
+    </button>
   </div>
 </template>
+
+<script setup lang="ts">
+const stringStatefulComp = ref(null)
+const stringStatefulScriptComp = ref(null)
+const clientScript = ref(null)
+const clientSetupScript = ref(null)
+
+const show = ref(false)
+</script>