diff --git a/CLAUDE.md b/CLAUDE.md
index 061b0ab..36c04ae 100644
--- a/CLAUDE.md
+++ b/CLAUDE.md
@@ -169,7 +169,7 @@ tmux attach -t <session-name>
 
 ### Running Tests
 ```bash
-# Run all tests (484 tests)
+# Run all tests (490 tests)
 npm test
 
 # Run specific test suites
@@ -214,7 +214,7 @@ CLAUDE_MIN_VERSION="2.0.76"           # Minimum Claude CLI version
 ```
 
 **CLI Options:**
-- `--output-format json|text` - Set Claude output format (default: json)
+- `--output-format json|text` - Set Claude output format (default: json). Note: `--live` mode requires JSON and will auto-switch from text to json.
 - `--allowed-tools "Write,Read,Bash(git *)"` - Restrict allowed tools
 - `--no-continue` - Disable session continuity, start fresh each loop
 
@@ -445,13 +445,13 @@ Ralph uses advanced error detection with two-stage filtering to eliminate false
 
 ## Test Suite
 
-### Test Files (484 tests total)
+### Test Files (490 tests total)
 
 | File | Tests | Description |
 |------|-------|-------------|
 | `test_circuit_breaker_recovery.bats` | 19 | Cooldown timer, auto-reset, parse_iso_to_epoch, CLI flag (Issue #160) |
 | `test_cli_parsing.bats` | 35 | CLI argument parsing for all flags + monitor parameter forwarding |
-| `test_cli_modern.bats` | 33 | Modern CLI commands (Phase 1.1) + build_claude_command fix |
+| `test_cli_modern.bats` | 39 | Modern CLI commands (Phase 1.1) + build_claude_command fix + live mode text format fix (#164) |
 | `test_json_parsing.bats` | 52 | JSON output format parsing + Claude CLI format + session management + array format |
 | `test_session_continuity.bats` | 44 | Session lifecycle management + expiration + circuit breaker integration + issue #91 fix |
 | `test_exit_detection.bats` | 53 | Exit signal detection + EXIT_SIGNAL-based completion indicators + progress detection |
diff --git a/ralph_loop.sh b/ralph_loop.sh
index 18c1df6..c243052 100755
--- a/ralph_loop.sh
+++ b/ralph_loop.sh
@@ -1048,21 +1048,24 @@ execute_claude_code() {
         session_id=$(init_claude_session)
     fi
 
+    # Live mode requires JSON output (stream-json) — override text format
+    if [[ "$LIVE_OUTPUT" == "true" && "$CLAUDE_OUTPUT_FORMAT" == "text" ]]; then
+        log_status "WARN" "Live mode requires JSON output format. Overriding text → json for this session."
+        CLAUDE_OUTPUT_FORMAT="json"
+    fi
+
     # Build the Claude CLI command with modern flags
-    # Note: We use the modern CLI with -p flag when CLAUDE_OUTPUT_FORMAT is "json"
-    # For backward compatibility, fall back to stdin piping for text mode
     local use_modern_cli=false
 
-    if [[ "$CLAUDE_OUTPUT_FORMAT" == "json" ]]; then
-        # Modern approach: use CLI flags (builds CLAUDE_CMD_ARGS array)
-        if build_claude_command "$PROMPT_FILE" "$loop_context" "$session_id"; then
-            use_modern_cli=true
-            log_status "INFO" "Using modern CLI mode (JSON output)"
-        else
-            log_status "WARN" "Failed to build modern CLI command, falling back to legacy mode"
-        fi
+    if build_claude_command "$PROMPT_FILE" "$loop_context" "$session_id"; then
+        use_modern_cli=true
+        log_status "INFO" "Using modern CLI mode (${CLAUDE_OUTPUT_FORMAT} output)"
     else
-        log_status "INFO" "Using legacy CLI mode (text output)"
+        log_status "WARN" "Failed to build modern CLI command, falling back to legacy mode"
+        if [[ "$LIVE_OUTPUT" == "true" ]]; then
+            log_status "ERROR" "Live mode requires a built Claude command. Falling back to background mode."
+            LIVE_OUTPUT=false
+        fi
     fi
 
     # Execute Claude Code
@@ -1091,6 +1094,14 @@ execute_claude_code() {
         fi
     fi
 
+    if [[ "$LIVE_OUTPUT" == "true" ]]; then
+        # Safety check: live mode requires a successfully built modern command
+        if [[ "$use_modern_cli" != "true" || ${#CLAUDE_CMD_ARGS[@]} -eq 0 ]]; then
+            log_status "ERROR" "Live mode requires a built Claude command. Falling back to background mode."
+            LIVE_OUTPUT=false
+        fi
+    fi
+
     if [[ "$LIVE_OUTPUT" == "true" ]]; then
         log_status "INFO" "📺 Live output mode enabled - showing Claude Code streaming..."
         echo -e "${PURPLE}━━━━━━━━━━━━━━━━ Claude Code Output ━━━━━━━━━━━━━━━━${NC}"
@@ -1613,7 +1624,7 @@ Options:
     -s, --status            Show current status and exit
     -m, --monitor           Start with tmux session and live monitor (requires tmux)
     -v, --verbose           Show detailed progress updates during execution
-    -l, --live              Show Claude Code output in real-time (streaming mode)
+    -l, --live              Show Claude Code output in real-time (auto-switches to JSON output)
     -t, --timeout MIN       Set Claude Code execution timeout in minutes (default: $CLAUDE_TIMEOUT_MINUTES)
     --reset-circuit         Reset circuit breaker to CLOSED state
     --circuit-status        Show circuit breaker status and exit
@@ -1622,6 +1633,7 @@ Options:
 
 Modern CLI Options (Phase 1.1):
     --output-format FORMAT  Set Claude output format: json or text (default: $CLAUDE_OUTPUT_FORMAT)
+                            Note: --live mode requires JSON and will auto-switch
     --allowed-tools TOOLS   Comma-separated list of allowed tools (default: $CLAUDE_ALLOWED_TOOLS)
     --no-continue           Disable session continuity across loops
     --session-expiry HOURS  Set session expiration time in hours (default: $CLAUDE_SESSION_EXPIRY_HOURS)
diff --git a/tests/unit/test_cli_modern.bats b/tests/unit/test_cli_modern.bats
index 7c0017d..6bdbfe7 100644
--- a/tests/unit/test_cli_modern.bats
+++ b/tests/unit/test_cli_modern.bats
@@ -667,3 +667,99 @@ EOF
     [[ "$output" == *'_env_MAX_CALLS_PER_HOUR'* ]]
     [[ "$output" == *'_env_CLAUDE_TIMEOUT_MINUTES'* ]]
 }
+
+# =============================================================================
+# LIVE MODE + TEXT FORMAT FIX TESTS (Issue #164)
+# Tests for: live mode format override, always-call build_claude_command,
+# and safety check for empty CLAUDE_CMD_ARGS
+# =============================================================================
+
+@test "build_claude_command works for text format (populates CLAUDE_CMD_ARGS)" {
+    export CLAUDE_CODE_CMD="claude"
+    export CLAUDE_OUTPUT_FORMAT="text"
+    export CLAUDE_ALLOWED_TOOLS="Write,Read"
+    export CLAUDE_USE_CONTINUE="false"
+
+    echo "Test prompt content" > "$PROMPT_FILE"
+
+    build_claude_command "$PROMPT_FILE" "" ""
+
+    # CLAUDE_CMD_ARGS should be populated even in text mode
+    [[ ${#CLAUDE_CMD_ARGS[@]} -gt 0 ]]
+
+    local cmd_string="${CLAUDE_CMD_ARGS[*]}"
+
+    # Should contain claude command and -p flag
+    [[ "$cmd_string" == *"claude"* ]]
+    [[ "$cmd_string" == *"-p"* ]]
+    [[ "$cmd_string" == *"Test prompt content"* ]]
+
+    # Should NOT contain --output-format (text mode omits it)
+    [[ "$cmd_string" != *"--output-format"* ]]
+
+    # Should still include allowed tools
+    [[ "$cmd_string" == *"--allowedTools"* ]]
+    [[ "$cmd_string" == *"Write"* ]]
+}
+
+@test "build_claude_command works for json format (includes --output-format json)" {
+    export CLAUDE_CODE_CMD="claude"
+    export CLAUDE_OUTPUT_FORMAT="json"
+    export CLAUDE_ALLOWED_TOOLS=""
+    export CLAUDE_USE_CONTINUE="false"
+
+    echo "Test prompt" > "$PROMPT_FILE"
+
+    build_claude_command "$PROMPT_FILE" "" ""
+
+    local cmd_string="${CLAUDE_CMD_ARGS[*]}"
+
+    # Should contain --output-format json
+    [[ "$cmd_string" == *"--output-format"* ]]
+    [[ "$cmd_string" == *"json"* ]]
+    [[ "$cmd_string" == *"-p"* ]]
+}
+
+@test "live mode overrides text to json format in ralph_loop.sh" {
+    # Verify ralph_loop.sh contains the live mode format override logic
+    run grep -A3 'LIVE_OUTPUT.*true.*CLAUDE_OUTPUT_FORMAT.*text' "${BATS_TEST_DIRNAME}/../../ralph_loop.sh"
+
+    # Should find the override block
+    [[ "$output" == *"CLAUDE_OUTPUT_FORMAT"* ]]
+    [[ "$output" == *"json"* ]]
+}
+
+@test "live mode format override preserves json format unchanged" {
+    # The override should only trigger when format is "text", not "json"
+    # Verify the condition checks for text specifically
+    run grep 'CLAUDE_OUTPUT_FORMAT.*text' "${BATS_TEST_DIRNAME}/../../ralph_loop.sh"
+
+    # Should check specifically for "text" (not a blanket override)
+    [[ "$output" == *'"text"'* ]]
+}
+
+@test "safety check prevents live mode with empty CLAUDE_CMD_ARGS" {
+    # Verify ralph_loop.sh has the safety check for empty CLAUDE_CMD_ARGS
+    # The check also verifies use_modern_cli is true (not just non-empty array)
+    run grep -A3 'use_modern_cli.*CLAUDE_CMD_ARGS.*-eq 0' "${BATS_TEST_DIRNAME}/../../ralph_loop.sh"
+
+    # Should find safety check that falls back to background mode
+    [[ "$output" == *"LIVE_OUTPUT"* ]] || [[ "$output" == *"background"* ]]
+}
+
+@test "build_claude_command is called regardless of output format in ralph_loop.sh" {
+    # Verify that build_claude_command is NOT gated behind JSON-only check
+    # The old pattern was: if [[ "$CLAUDE_OUTPUT_FORMAT" == "json" ]]; then build_claude_command...
+    # The new pattern should call build_claude_command unconditionally
+
+    # Check that build_claude_command call is NOT inside a JSON-only conditional
+    # Look for the actual call site (not the function definition or comments)
+    local script="${BATS_TEST_DIRNAME}/../../ralph_loop.sh"
+
+    # The old pattern: "json" check immediately followed by build_claude_command
+    # should no longer exist as a gate
+    run bash -c "sed -n '/# Build the Claude CLI command/,/# Execute Claude Code/p' '$script' | grep -c 'CLAUDE_OUTPUT_FORMAT.*json.*build_claude_command'"
+
+    # Should find 0 matches (the gate has been removed)
+    [[ "$output" == "0" ]]
+}