Strange netlify deployment issues and bugs with monorepo

Environment

Operating System: Linux
Node Version: v18.18.0 // <--- using v20 in prod but this doesn't change the outcomes described
Nuxt Version: 3.11.2
CLI Version: 3.11.1
Nitro Version: 2.9.6
Package Manager: pnpm@8.15.6
Builder: -
User Config: sourcemap, typescript, experimental, modules, nitro, routeRules, site, sitemap
Runtime Modules: @nuxt/ui@2.15.2, @nuxt/content@2.12.1, @nuxtjs/sitemap@5.1.4, nuxt-og-image@3.0.0-rc.52
Build Modules: -

Reproduction

Cannot repoduce in stackblitz due to wasm env but a repo is available here https://github.com/jbool24/nuxt-netlify-deploy

Describe the bug

There are issues when deploying to Netlfiy with a mono repo.

Intention:

To deploy from a mono repo that is structured with N number of Nuxt3 projects. All projects are top level and there would be a ./layers dir top level as well to author shared local layers between projects. Currently this is achieved with pnpm workspaces. Any project may iterate over time and "may" have split handling using routeRules. At the current state of this setup only static files are generated for deployment with the intention of adding CMS based dynamic routes over time to the Nuxt app. As its is setup right now this issue has two parts that seem to surface which seem like a bug:

Current state:

When using a mono repository setup with Netlify presets (should be zero config) as output for nitro some strange things happen:

1. There is a phantom dir that gets created under the app directory when using netlify-cli tools to preview the build process. For example within the reproduction link provided, "app_dir" which is one full nuxt project will see {{MONO_REPO_ROOT}}/app_dir/app_dir/.netlify/functions-internal created within the existing {{MONO_REPO_ROOT}}/app_dir however nothing is output here. This is also incorrect as it should instead be inside {{MONO_REPO_ROOT}}/app_dir/.netlify folder that already exists in the nuxt project's root. Even though the end result of the build process outputs a server directory (and assets) in the correct {{MONO_REPO_ROOT}}/app_dir/.netlify/functions-internal/server directory.
2. Nitro/Nuxt outputs a _redirect into the dist directory for Netlify use in deployment. When a simple deployment prerenders some pages with route rules and also using the sitemap and the (seo module)[https://nuxt.com/modules/seo] the redirects for sitemap routes instruct netlify with the following:

# File: ./dist/_redirects  
/sitemap.xml /sitemap_index.xml	302
/sitemap_index.xml	/.netlify/builders/server 200 <-- (/.netlify/builders/server doesn't exist and causes 404)
/__nuxt_error	/.netlify/functions/server 200 <-- (/.netlify/builders/server doesn't exist and causes 404)
/* /.netlify/functions/server 200

Additional context

Relates to https://github.com/nuxt/nuxt/issues/27026

As Netlify docs instruct for monorepos, a project level netlify.toml should specify the base for use during deployment. In theory, Netlify may be able to auto detect a monorepo but there would be a requirement to also build deps from a top level "layers" shared between nuxt projects so we specify a base dir

[build]
base = "app_dir/"
command = "pnpm build"
publish = "dist/"

The following are relative logs from the Nuxt build process triggered by Netlfiy cli using ntl serve to debug/preview a deployment. This is run from the mono-repo root.

✔ Server built in 13560ms                                                                                                                                                                                                       11:55:22 AM   
ℹ Initializing prerenderer                                                                                                                                                                                                nitro 11:55:22 AM   
ℹ Prerendering 3 routes                                                                                                                                                                                                   nitro 11:55:29 AM   
  ├─ /api/_content/cache.1714578893919.json (192ms)                                                                                                                                                                        nitro 11:55:29 AM  
  ├─ /api/_content/query/cdzJXZdsvf.1714578893919.json (6ms)                                                                                                                                                                                                                                                                                                                                            nitro 11:55:29 AM  
  ├─ / (440ms)                                                                                                                                                                                                             nitro 11:55:29 AM  
  ├─ /_payload.json (2ms)                                                                                                                                                                                                  nitro 11:55:29 AM  
ℹ Prerendered 6 routes in 13.385 seconds                                                                                                                                                                                  nitro 11:55:35 AM   
[nitro] Nitro now uses `isr` option to configure ISR behavior on Netlify. Backwards-compatible support for `static` and `swr` support with Builder Functions will be removed in the future versions. Set `future.nativeSWR: true` nitro config
 disable this warning.                                                                                                                                                                                                                        
✔ Generated public dist                                                                                                                                                                                                   nitro 11:55:36 AM   
ℹ Building Nuxt Nitro server (preset: netlify-builder)                                                                                                                                                                    nitro 11:55:36 AM   
✔ Nuxt Nitro server built                                                                                                                                                                                                 nitro 11:55:46 AM   
  ├─ .netlify/functions-internal/server/chunks/_/empty.mjs (126 B) (124 B gzip)                                                                                                                                                               
  ├─ .netlify/functions-internal/server/chunks/_/error-500.mjs (5.05 kB) (2.09 kB gzip)                                                                                                                                                       
  ├─ .netlify/functions-internal/server/chunks/_/node.mjs (142 B) (132 B gzip)

# ... etc

Tail end of netlify build process and dev server logs (Notice the redirect to non-existing file path. No functions deployed at current state of the Nuxt project with static only routes except sitemap.xmls

Σ Total size: 44.1 MB (17.4 MB gzip)

(build.command completed in 58s)

Functions bundling                                            
────────────────────────────────────────────────────────────────


(Functions bundling completed in 1ms)

Save deploy artifacts                                         
────────────────────────────────────────────────────────────────


(Save deploy artifacts completed in 1ms)

Netlify Build Complete                                        
────────────────────────────────────────────────────────────────

(Netlify Build completed in 58s)

◈ Static server listening to 3999

   ┌─────────────────────────────────────────────────┐
   │                                                 │
   │   ◈ Server now ready on http://localhost:8888   │
   │                                                 │
   └─────────────────────────────────────────────────┘

◈ Redirecting /sitemap.xml to /sitemap_index.xml
◈ Rewrote URL to /.netlify/builders/server # <-- navigating to /sitemap which gets 404

Logs

No response

Start with the linked reproduction repository and its project-level netlify.toml, then run the Netlify CLI preview with ntl serve from the monorepo root. Inspect dist/_redirects and the generated .netlify paths; done means the preview uses the project’s existing output directory and the sitemap redirects no longer target missing builder paths.