diff --git a/HISTORY.rst b/HISTORY.rst
index 67209422..2b5c4c38 100644
--- a/HISTORY.rst
+++ b/HISTORY.rst
@@ -15,6 +15,8 @@ PlatformIO 2.0
   (`issue #683 <https://github.com/platformio/platformio/issues/683>`_)
 * Added support for `Arduboy DevKit <https://www.arduboy.com>`__, the game system
   the size of a credit card
+* Fixed issue with ``-L relative/path`` when parsing ``build_flags``
+  (`issue #688 <https://github.com/platformio/platformio/issues/688>`_)
 
 2.9.4 (2016-06-04)
 ~~~~~~~~~~~~~~~~~~
diff --git a/platformio/builder/tools/platformio.py b/platformio/builder/tools/platformio.py
index 891f45ba..fb37642d 100644
--- a/platformio/builder/tools/platformio.py
+++ b/platformio/builder/tools/platformio.py
@@ -114,10 +114,11 @@ def ProcessFlags(env, flags):
             env.Append(CPPDEFINES=[flag])
         env.Append(**parsed_flags)
 
-    # fix relative CPPPATH
-    for i, p in enumerate(env.get("CPPPATH", [])):
-        if isdir(p):
-            env['CPPPATH'][i] = realpath(p)
+    # fix relative CPPPATH & LIBPATH
+    for k in ("CPPPATH", "LIBPATH"):
+        for i, p in enumerate(env.get(k, [])):
+            if isdir(p):
+                env[k][i] = realpath(p)
     # fix relative path for "-include"
     for i, f in enumerate(env.get("CCFLAGS", [])):
         if isinstance(f, tuple) and f[0] == "-include":