diff --git a/packages/next/build/webpack/loaders/css-loader/src/utils.js b/packages/next/build/webpack/loaders/css-loader/src/utils.js
index d3e1198e5fcf..0ab83b2fd9ec 100644
--- a/packages/next/build/webpack/loaders/css-loader/src/utils.js
+++ b/packages/next/build/webpack/loaders/css-loader/src/utils.js
@@ -43,6 +43,10 @@ function normalizePath(file) {
   return path.sep === '\\' ? file.replace(/\\/g, '/') : file
 }
 
+function fixedEncodeURIComponent(str) {
+  return str.replace(/[!'()*]/g, (c) => `%${c.charCodeAt(0).toString(16)}`)
+}
+
 function normalizeUrl(url, isStringValue) {
   let normalizedUrl = url
 
@@ -51,10 +55,28 @@ function normalizeUrl(url, isStringValue) {
   }
 
   if (matchNativeWin32Path.test(url)) {
-    return decodeURIComponent(normalizedUrl)
+    try {
+      normalizedUrl = decodeURIComponent(normalizedUrl)
+    } catch (error) {
+      // Ignores invalid and broken URLs and try to resolve them as is
+    }
+
+    return normalizedUrl
+  }
+
+  normalizedUrl = unescape(normalizedUrl)
+
+  if (isDataUrl(url)) {
+    return fixedEncodeURIComponent(normalizedUrl)
+  }
+
+  try {
+    normalizedUrl = decodeURI(normalizedUrl)
+  } catch (error) {
+    // Ignores invalid and broken URLs and try to resolve them as is
   }
 
-  return decodeURIComponent(unescape(normalizedUrl))
+  return normalizedUrl
 }
 
 function requestify(url, rootContext) {
diff --git a/test/integration/css-fixtures/data-url/pages/index.js b/test/integration/css-fixtures/data-url/pages/index.js
new file mode 100644
index 000000000000..2a5dc77aec1b
--- /dev/null
+++ b/test/integration/css-fixtures/data-url/pages/index.js
@@ -0,0 +1,9 @@
+import { className } from './index.module.css'
+
+export default function Home() {
+  return (
+    <div id="verify-background" className={className}>
+      Background
+    </div>
+  )
+}
diff --git a/test/integration/css-fixtures/data-url/pages/index.module.css b/test/integration/css-fixtures/data-url/pages/index.module.css
new file mode 100644
index 000000000000..fb722e140e34
--- /dev/null
+++ b/test/integration/css-fixtures/data-url/pages/index.module.css
@@ -0,0 +1,4 @@
+.className {
+  background: url('data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20649%2087.5%22%20xmlns%3Av%3D%22https%3A%2F%2Fvecta.io%2Fnano%22%3E%3Cpath%20d%3D%22M0%200h649v87.5H0z%22%20fill%3D%22%230b3647%22%2F%3E%3Cpath%20d%3D%22M0%204.03h649v76.22H0z%22%20fill%3D%22%23104f68%22%2F%3E%3Cpath%20d%3D%22M0%200h649v8.07H0z%22%20fill%3D%22%231a6184%22%2F%3E%3C%2Fsvg%3E')
+    0 0 no-repeat;
+}
diff --git a/test/integration/css/test/index.test.js b/test/integration/css/test/index.test.js
index 4b3345cac2df..09cef727dd03 100644
--- a/test/integration/css/test/index.test.js
+++ b/test/integration/css/test/index.test.js
@@ -1852,4 +1852,26 @@ describe('CSS Support', () => {
       }
     })
   })
+
+  describe('Data URLs', () => {
+    const workDir = join(fixturesDir, 'data-url')
+
+    it('should compile successfully', async () => {
+      await remove(join(workDir, '.next'))
+      const { code } = await nextBuild(workDir)
+      expect(code).toBe(0)
+    })
+
+    it('should have emitted expected files', async () => {
+      const cssFolder = join(workDir, '.next/static/css')
+      const files = await readdir(cssFolder)
+      const cssFiles = files.filter((f) => /\.css$/.test(f))
+
+      expect(cssFiles.length).toBe(1)
+      const cssContent = await readFile(join(cssFolder, cssFiles[0]), 'utf8')
+      expect(cssContent.replace(/\/\*.*?\*\//g, '').trim()).toMatch(
+        /background:url\("data:[^"]+"\)/
+      )
+    })
+  })
 })