diff --git a/lib/component-normalizer.js b/lib/component-normalizer.js
index 9a97239dd..12f2db170 100644
--- a/lib/component-normalizer.js
+++ b/lib/component-normalizer.js
@@ -40,7 +40,10 @@ module.exports = function normalizeComponent (
   if (moduleIdentifier) { // server build
     hook = function (context) {
       // 2.3 injection
-      context = context || (this.$vnode && this.$vnode.ssrContext)
+      context =
+        context || // cached call
+        (this.$vnode && this.$vnode.ssrContext) || // stateful
+        (this.parent && this.parent.$vnode && this.parent.$vnode.ssrContext) // functional
       // 2.2 with runInNewContext: true
       if (!context && typeof __VUE_SSR_CONTEXT__ !== 'undefined') {
         context = __VUE_SSR_CONTEXT__
@@ -62,11 +65,22 @@ module.exports = function normalizeComponent (
   }
 
   if (hook) {
-    // inject component registration as beforeCreate hook
-    var existing = options.beforeCreate
-    options.beforeCreate = existing
-      ? [].concat(existing, hook)
-      : [hook]
+    var functional = options.functional
+    var existing = functional
+      ? options.render
+      : options.beforeCreate
+    if (!functional) {
+      // inject component registration as beforeCreate hook
+      options.beforeCreate = existing
+        ? [].concat(existing, hook)
+        : [hook]
+    } else {
+      // register for functioal component in vue file
+      options.render = function renderWithStyleInjection (h, context) {
+        hook.call(context)
+        return existing(h, context)
+      }
+    }
   }
 
   return {
diff --git a/package.json b/package.json
index 3070c1760..7a4723a80 100644
--- a/package.json
+++ b/package.json
@@ -78,9 +78,9 @@
     "stylus-loader": "^2.0.0",
     "sugarss": "^0.2.0",
     "url-loader": "^0.5.7",
-    "vue": "^2.3.0-beta.1",
-    "vue-server-renderer": "^2.3.0-beta.1",
-    "vue-template-compiler": "^2.3.0-beta.1",
+    "vue": "^2.3.2",
+    "vue-server-renderer": "^2.3.2",
+    "vue-template-compiler": "^2.3.2",
     "webpack": "^2.2.0"
   }
 }
diff --git a/test/fixtures/functional-style.vue b/test/fixtures/functional-style.vue
new file mode 100644
index 000000000..70f575f43
--- /dev/null
+++ b/test/fixtures/functional-style.vue
@@ -0,0 +1,12 @@
+<script>
+export default {
+  functional: true,
+  render (h) {
+    return h('div', { class: 'foo' }, ['functional'])
+  }
+}
+</script>
+
+<style>
+.foo { color: red; }
+</style>
diff --git a/test/fixtures/ssr-style.js b/test/fixtures/ssr-style.js
index 35f445ce3..38dc1d7f8 100644
--- a/test/fixtures/ssr-style.js
+++ b/test/fixtures/ssr-style.js
@@ -1,4 +1,6 @@
 var Vue = require('vue')
 var App = require('./ssr-style.vue')
 
-module.exports = new Vue(App)
+module.exports = () => new Vue({
+  render: h => h(App)
+})
diff --git a/test/fixtures/ssr-style.vue b/test/fixtures/ssr-style.vue
index 059d4bf6d..55d15f674 100644
--- a/test/fixtures/ssr-style.vue
+++ b/test/fixtures/ssr-style.vue
@@ -2,14 +2,19 @@
   <div>
     <h1>Hello</h1>
     <basic/>
+    <functional-style/>
   </div>
 </template>
 
 <script>
 import Basic from './basic.vue'
+import FunctionalStyle from './functional-style.vue'
 
 export default {
-  components: { Basic }
+  components: {
+    Basic,
+    FunctionalStyle
+  }
 }
 </script>
 
diff --git a/test/test.js b/test/test.js
index 9ca17de66..5b9989995 100644
--- a/test/test.js
+++ b/test/test.js
@@ -84,29 +84,30 @@ function test (options, assert) {
 }
 
 function mockRender (options, data) {
+  function h (tag, data, children) {
+    if (Array.isArray(data)) {
+      children = data
+      data = null
+    }
+    return {
+      tag: tag,
+      data: data,
+      children: children
+    }
+  }
   return options.render.call(Object.assign({
     _v (val) {
       return val
     },
     _self: {},
-    $createElement (tag, data, children) {
-      if (Array.isArray(data)) {
-        children = data
-        data = null
-      }
-      return {
-        tag: tag,
-        data: data,
-        children: children
-      }
-    },
+    $createElement: h,
     _m (index) {
       return options.staticRenderFns[index].call(this)
     },
     _s (str) {
       return String(str)
     }
-  }, data))
+  }, data), h)
 }
 
 function interopDefault (module) {
@@ -611,24 +612,28 @@ describe('vue-loader', function () {
       }
     }, code => {
       const renderer = SSR.createBundleRenderer(code, {
-        basedir: __dirname
+        basedir: __dirname,
+        runInNewContext: 'once'
       })
       const context = {
         _registeredComponents: new Set()
       }
       renderer.renderToString(context, (err, res) => {
         if (err) return done(err)
-        expect(res).to.contain('server-rendered')
+        expect(res).to.contain('data-server-rendered')
         expect(res).to.contain('<h1>Hello</h1>')
         expect(res).to.contain('Hello from Component A!')
+        expect(res).to.contain('<div class="foo">functional</div>')
         // from main component
         expect(context.styles).to.contain('h1 { color: green;')
         // from imported child component
         expect(context.styles).to.contain('comp-a h2 {\n  color: #f00;')
         // from imported css file
         expect(context.styles).to.contain('h1 { color: red;')
+        // from imported functional component
+        expect(context.styles).to.contain('.foo { color: red;')
         // collect component identifiers during render
-        expect(Array.from(context._registeredComponents).length).to.equal(2)
+        expect(Array.from(context._registeredComponents).length).to.equal(3)
         done()
       })
     })
@@ -834,4 +839,22 @@ describe('vue-loader', function () {
       done()
     })
   })
+
+  it('functional component with styles', done => {
+    test({
+      entry: './test/fixtures/functional-style.vue'
+    }, (window, module, rawModule) => {
+      expect(module.functional).to.equal(true)
+      var vnode = mockRender(module)
+      // <div class="foo">hi</div>
+      expect(vnode.tag).to.equal('div')
+      expect(vnode.data.class).to.equal('foo')
+      expect(vnode.children[0]).to.equal('functional')
+
+      var style = window.document.querySelector('style').textContent
+      style = normalizeNewline(style)
+      expect(style).to.contain('.foo { color: red;\n}')
+      done()
+    })
+  })
 })
diff --git a/yarn.lock b/yarn.lock
index 42144c822..7d191b3fa 100644
--- a/yarn.lock
+++ b/yarn.lock
@@ -2497,6 +2497,10 @@ lodash._isiterateecall@^3.0.0:
   version "3.0.9"
   resolved "https://registry.yarnpkg.com/lodash._isiterateecall/-/lodash._isiterateecall-3.0.9.tgz#5203ad7ba425fae842460e696db9cf3e6aac057c"
 
+lodash._reinterpolate@~3.0.0:
+  version "3.0.0"
+  resolved "https://registry.yarnpkg.com/lodash._reinterpolate/-/lodash._reinterpolate-3.0.0.tgz#0ccf2d89166af03b3663c796538b75ac6e114d9d"
+
 lodash.camelcase@^4.3.0:
   version "4.3.0"
   resolved "https://registry.yarnpkg.com/lodash.camelcase/-/lodash.camelcase-4.3.0.tgz#b28aa6288a2b9fc651035c7711f65ab6190331a6"
@@ -2533,6 +2537,19 @@ lodash.memoize@^4.1.2:
   version "4.1.2"
   resolved "https://registry.yarnpkg.com/lodash.memoize/-/lodash.memoize-4.1.2.tgz#bcc6c49a42a2840ed997f323eada5ecd182e0bfe"
 
+lodash.template@^4.4.0:
+  version "4.4.0"
+  resolved "https://registry.yarnpkg.com/lodash.template/-/lodash.template-4.4.0.tgz#e73a0385c8355591746e020b99679c690e68fba0"
+  dependencies:
+    lodash._reinterpolate "~3.0.0"
+    lodash.templatesettings "^4.0.0"
+
+lodash.templatesettings@^4.0.0:
+  version "4.1.0"
+  resolved "https://registry.yarnpkg.com/lodash.templatesettings/-/lodash.templatesettings-4.1.0.tgz#2b4d4e95ba440d915ff08bc899e4553666713316"
+  dependencies:
+    lodash._reinterpolate "~3.0.0"
+
 lodash.uniq@^4.5.0:
   version "4.5.0"
   resolved "https://registry.yarnpkg.com/lodash.uniq/-/lodash.uniq-4.5.0.tgz#d0225373aeb652adc1bc82e4945339a842754773"
@@ -4137,21 +4154,18 @@ vue-hot-reload-api@^2.1.0:
   version "2.1.0"
   resolved "https://registry.yarnpkg.com/vue-hot-reload-api/-/vue-hot-reload-api-2.1.0.tgz#9ca58a6e0df9078554ce1708688b6578754d86de"
 
-vue-server-renderer@^2.3.0:
-  version "2.2.6"
-  resolved "https://registry.yarnpkg.com/vue-server-renderer/-/vue-server-renderer-2.2.6.tgz#0a20535544b6948bca076380d058e19bb1304eef"
+vue-server-renderer@^2.3.2:
+  version "2.3.2"
+  resolved "https://registry.yarnpkg.com/vue-server-renderer/-/vue-server-renderer-2.3.2.tgz#01bfde9c524ef041873f1e2d18f9356c620b4f8c"
   dependencies:
-    de-indent "^1.0.2"
+    chalk "^1.1.3"
+    hash-sum "^1.0.2"
     he "^1.1.0"
+    lodash.template "^4.4.0"
+    lodash.uniq "^4.5.0"
     resolve "^1.2.0"
-    source-map "0.5.6"
-    vue-ssr-html-stream "^2.1.0"
-
-vue-ssr-html-stream@^2.1.0:
-  version "2.2.0"
-  resolved "https://registry.yarnpkg.com/vue-ssr-html-stream/-/vue-ssr-html-stream-2.2.0.tgz#56d78b96c9c172b43749a324c156e888aca96d92"
-  dependencies:
     serialize-javascript "^1.3.0"
+    source-map "0.5.6"
 
 vue-style-loader@^3.0.0:
   version "3.0.1"
@@ -4160,9 +4174,9 @@ vue-style-loader@^3.0.0:
     hash-sum "^1.0.2"
     loader-utils "^1.0.2"
 
-vue-template-compiler@^2.3.0:
-  version "2.2.6"
-  resolved "https://registry.yarnpkg.com/vue-template-compiler/-/vue-template-compiler-2.2.6.tgz#2e2928daf0cd0feca9dfc35a9729adeae173ec68"
+vue-template-compiler@^2.3.2:
+  version "2.3.2"
+  resolved "https://registry.yarnpkg.com/vue-template-compiler/-/vue-template-compiler-2.3.2.tgz#d48a7f53df5f497033827182ceb4f0d340803017"
   dependencies:
     de-indent "^1.0.2"
     he "^1.1.0"
@@ -4171,9 +4185,9 @@ vue-template-es2015-compiler@^1.2.2:
   version "1.5.2"
   resolved "https://registry.yarnpkg.com/vue-template-es2015-compiler/-/vue-template-es2015-compiler-1.5.2.tgz#a0a6c50c941d2a4abda963f2f42c337ac450ee95"
 
-vue@^2.3.0:
-  version "2.2.6"
-  resolved "https://registry.yarnpkg.com/vue/-/vue-2.2.6.tgz#451714b394dd6d4eae7b773c40c2034a59621aed"
+vue@^2.3.2:
+  version "2.3.2"
+  resolved "https://registry.yarnpkg.com/vue/-/vue-2.3.2.tgz#9e52aae3593480be235ff227557837e69f98203a"
 
 watchpack@^1.3.1:
   version "1.3.1"