diff --git a/compose/config/config.py b/compose/config/config.py
index df98dcb49..adfb53d8f 100644
--- a/compose/config/config.py
+++ b/compose/config/config.py
@@ -709,14 +709,7 @@ def process_service(service_config):
         ]
 
     if 'build' in service_dict:
-        if isinstance(service_dict['build'], six.string_types):
-            service_dict['build'] = resolve_build_path(working_dir, service_dict['build'])
-        elif isinstance(service_dict['build'], dict):
-            if 'context' in service_dict['build']:
-                path = service_dict['build']['context']
-                service_dict['build']['context'] = resolve_build_path(working_dir, path)
-            if 'labels' in service_dict['build']:
-                service_dict['build']['labels'] = parse_labels(service_dict['build']['labels'])
+        process_build_section(service_dict, working_dir)
 
     if 'volumes' in service_dict and service_dict.get('volume_driver') is None:
         service_dict['volumes'] = resolve_volume_paths(working_dir, service_dict)
@@ -724,6 +717,9 @@ def process_service(service_config):
     if 'sysctls' in service_dict:
         service_dict['sysctls'] = build_string_dict(parse_sysctls(service_dict['sysctls']))
 
+    if 'labels' in service_dict:
+        service_dict['labels'] = parse_labels(service_dict['labels'])
+
     service_dict = process_depends_on(service_dict)
 
     for field in ['dns', 'dns_search', 'tmpfs']:
@@ -737,6 +733,17 @@ def process_service(service_config):
     return service_dict
 
 
+def process_build_section(service_dict, working_dir):
+    if isinstance(service_dict['build'], six.string_types):
+        service_dict['build'] = resolve_build_path(working_dir, service_dict['build'])
+    elif isinstance(service_dict['build'], dict):
+        if 'context' in service_dict['build']:
+            path = service_dict['build']['context']
+            service_dict['build']['context'] = resolve_build_path(working_dir, path)
+        if 'labels' in service_dict['build']:
+            service_dict['build']['labels'] = parse_labels(service_dict['build']['labels'])
+
+
 def process_ports(service_dict):
     if 'ports' not in service_dict:
         return service_dict
diff --git a/tests/unit/config/config_test.py b/tests/unit/config/config_test.py
index 3eaa97166..a758154c0 100644
--- a/tests/unit/config/config_test.py
+++ b/tests/unit/config/config_test.py
@@ -406,6 +406,32 @@ class ConfigTest(unittest.TestCase):
             }
         }
 
+    def test_load_config_service_labels(self):
+        base_file = config.ConfigFile(
+            'base.yaml',
+            {
+                'version': '2.1',
+                'services': {
+                    'web': {
+                        'image': 'example/web',
+                        'labels': ['label_key=label_val']
+                    },
+                    'db': {
+                        'image': 'example/db',
+                        'labels': {
+                            'label_key': 'label_val'
+                        }
+                    }
+                },
+            }
+        )
+        details = config.ConfigDetails('.', [base_file])
+        service_dicts = config.load(details).services
+        for service in service_dicts:
+            assert service['labels'] == {
+                'label_key': 'label_val'
+            }
+
     def test_load_config_volume_and_network_labels(self):
         base_file = config.ConfigFile(
             'base.yaml',
@@ -434,30 +460,23 @@ class ConfigTest(unittest.TestCase):
         )
 
         details = config.ConfigDetails('.', [base_file])
-        network_dict = config.load(details).networks
-        volume_dict = config.load(details).volumes
+        loaded_config = config.load(details)
 
-        self.assertEqual(
-            network_dict,
-            {
-                'with_label': {
-                    'labels': {
-                        'label_key': 'label_val'
-                    }
+        assert loaded_config.networks == {
+            'with_label': {
+                'labels': {
+                    'label_key': 'label_val'
                 }
             }
-        )
+        }
 
-        self.assertEqual(
-            volume_dict,
-            {
-                'with_label': {
-                    'labels': {
-                        'label_key': 'label_val'
-                    }
+        assert loaded_config.volumes == {
+            'with_label': {
+                'labels': {
+                    'label_key': 'label_val'
                 }
             }
-        )
+        }
 
     def test_load_config_invalid_service_names(self):
         for invalid_name in ['?not?allowed', ' ', '', '!', '/', '\xe2']: