diff --git a/packages/playwright-test/src/plugins/vitePlugin.ts b/packages/playwright-test/src/plugins/vitePlugin.ts
index 019f97618d..ce8a607ea0 100644
--- a/packages/playwright-test/src/plugins/vitePlugin.ts
+++ b/packages/playwright-test/src/plugins/vitePlugin.ts
@@ -27,7 +27,7 @@ import { assert, calculateSha1 } from 'playwright-core/lib/utils';
 import type { AddressInfo } from 'net';
 
 let previewServer: PreviewServer;
-const VERSION = 5;
+const VERSION = 6;
 
 type CtConfig = {
   ctPort?: number;
@@ -88,7 +88,6 @@ export function createPlugin(
       const sourcesDirty = !buildExists || hasNewComponents || await checkSources(buildInfo);
 
       viteConfig.root = rootDir;
-      viteConfig.publicDir = false;
       viteConfig.preview = { port };
       viteConfig.build = {
         outDir
diff --git a/tests/playwright-test/playwright.ct-react.spec.ts b/tests/playwright-test/playwright.ct-react.spec.ts
index 2fd9496aa7..a507b05895 100644
--- a/tests/playwright-test/playwright.ct-react.spec.ts
+++ b/tests/playwright-test/playwright.ct-react.spec.ts
@@ -26,7 +26,6 @@ test('should work with TSX', async ({ runInlineTest }) => {
       //@no-header
       export const Button = () => <button>Button</button>;
     `,
-
     'src/button.test.tsx': `
       //@no-header
       import { test, expect } from '@playwright/experimental-ct-react';
@@ -321,3 +320,39 @@ test('should respect default property values', async ({ runInlineTest }) => {
   expect(result.exitCode).toBe(0);
   expect(result.passed).toBe(1);
 });
+
+test('should bundle public folder', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'playwright/index.html': `<script type="module" src="/playwright/index.ts"></script>`,
+    'playwright/index.ts': `
+      //@no-header
+    `,
+    'public/logo.svg': `
+      //@no-header
+      <svg viewBox="0 0 100 100" xmlns="http://www.w3.org/2000/svg">
+        <circle cx="50" cy="50" r="50"/>
+      </svg>`,
+    'src/image.tsx': `
+      //@no-header
+      export const Image = () => <img src='/logo.svg' className="App-logo" alt="logo" />;
+    `,
+    'src/image.test.tsx': `
+      //@no-header
+      import { test, expect } from '@playwright/experimental-ct-react';
+      import { Image } from './image';
+
+      test('pass', async ({ mount, page }) => {
+        const urls = [];
+        const [response] = await Promise.all([
+          page.waitForResponse('**/*.svg'),
+          mount(<Image></Image>)
+        ]);
+        const data = await response.body();
+        await expect(data.toString()).toContain('</svg>');
+      });
+    `,
+  }, { workers: 1 });
+
+  expect(result.exitCode).toBe(0);
+  expect(result.passed).toBe(1);
+});