diff --git a/.github/workflows/test.yml b/.github/workflows/test.yml
index 5122e5bb..f89978b8 100644
--- a/.github/workflows/test.yml
+++ b/.github/workflows/test.yml
@@ -29,7 +29,7 @@ jobs:
           key:
             ubuntu-build-${{ env.cache-name }}-${{
             hashFiles('plugin/test/fixtures/**/package.json') }}-node-modules
-      - run: npm install -g netlify-cli@17.6.0
+      - run: npm install -g netlify-cli
       - run: npm ci
       - run: cd plugin && npm ci && npm run build
       - run: npm test
diff --git a/plugin/src/helpers/config.ts b/plugin/src/helpers/config.ts
index 43aab3bd..6cdbe779 100644
--- a/plugin/src/helpers/config.ts
+++ b/plugin/src/helpers/config.ts
@@ -200,20 +200,47 @@ export async function modifyConfig({
   netlifyConfig,
   cacheDir,
   neededFunctions,
+  isDev,
 }: {
   netlifyConfig: NetlifyConfig
   cacheDir: string
   neededFunctions: FunctionList
+  isDev?: boolean
 }): Promise<void> {
   mutateConfig({ netlifyConfig, cacheDir, neededFunctions })
 
-  if (neededFunctions.includes('API')) {
-    // Editing _redirects so it works with ntl dev
+  const redirectsFileName = join(netlifyConfig.build.publish, '_redirects')
+
+  await spliceConfig({
+    startMarker: '# @netlify/plugin-gatsby redirects start',
+    endMarker: '# @netlify/plugin-gatsby redirects end',
+    contents: neededFunctions.includes('API')
+      ? '/api/* /.netlify/functions/__api 200'
+      : '',
+    fileName: redirectsFileName,
+  })
+
+  if (isDev) {
+    // removing redirects that possibly were added for builds previously
+    // DSG/SSR is fully handled by gatsby dev server and is not even produced in dev
+
+    // this is a bit of a hack - gatsby-plugin-netlify appends redirects before @netlify/plugin-gatsby
+    // so we use gatsby-plugin-netlify marker as start and @netlify/plugin-gatsby start marker as end
+    await spliceConfig({
+      startMarker: '## Created with gatsby-plugin-netlify',
+      endMarker: '# @netlify/plugin-gatsby redirects start',
+      contents: '',
+      fileName: redirectsFileName,
+    })
+    // this removes redirects produced by adapters in newer gatsby versions
+    // while build plugin doesn't do any work during builds when adapters are used
+    // adapters don't have hooks for `develop` so they can't clean their redirects
+    // so build plugin is handling that as it still runs (just skips most of the work)
     await spliceConfig({
-      startMarker: '# @netlify/plugin-gatsby redirects start',
-      endMarker: '# @netlify/plugin-gatsby redirects end',
-      contents: '/api/* /.netlify/functions/__api 200',
-      fileName: join(netlifyConfig.build.publish, '_redirects'),
+      startMarker: '# gatsby-adapter-netlify start',
+      endMarker: '# gatsby-adapter-netlify end',
+      contents: '',
+      fileName: redirectsFileName,
     })
   }
 }
diff --git a/plugin/src/index.ts b/plugin/src/index.ts
index 219c90e6..030bbabf 100644
--- a/plugin/src/index.ts
+++ b/plugin/src/index.ts
@@ -47,6 +47,28 @@ export async function onPreBuild({
   await checkNetlifyImageCdn({ netlifyConfig })
 }
 
+export async function onDev({
+  netlifyConfig,
+  constants,
+}: NetlifyPluginOptions): Promise<void> {
+  // eslint-disable-next-line no-param-reassign
+  netlifyConfig.build.environment.GATSBY_PRECOMPILE_DEVELOP_FUNCTIONS = `true`
+
+  const { PUBLISH_DIR } = constants
+
+  const cacheDir = normalizedCacheDir(PUBLISH_DIR)
+
+  const neededFunctionsForBuild = await getNeededFunctions(cacheDir)
+  // DSG/SSR engine is not produced for dev so we are filtering them out
+  const neededFunctions = neededFunctionsForBuild.filter(
+    (neededFunction) => neededFunction !== 'DSG' && neededFunction !== 'SSR',
+  )
+
+  await writeFunctions({ constants, netlifyConfig, neededFunctions })
+
+  await modifyConfig({ netlifyConfig, cacheDir, neededFunctions, isDev: true })
+}
+
 export async function onBuild({
   constants,
   netlifyConfig,
@@ -86,7 +108,7 @@ The plugin no longer uses this and it should be deleted to avoid conflicts.\n`)
 
   await writeFunctions({ constants, netlifyConfig, neededFunctions })
 
-  await modifyConfig({ netlifyConfig, cacheDir, neededFunctions })
+  await modifyConfig({ netlifyConfig, cacheDir, neededFunctions, isDev: false })
 
   await modifyFiles({ netlifyConfig, neededFunctions })
 }