Latest Update

It works now as of next@v11.0.1. No need to follow the steps below.

Disable the static images feature for now as a workaround:

// next.config.js

module.exports = {
  images: {
    disableStaticImages: true
  }
}

Update: This has been fixed in next@11.0.1-canary.4. Install it:

$ npm install next@canary

See the related issue & the PR.