Phase-separated p62 bodies activate NRF2, a key transcription factor for antioxidant response, by sequestering KEAP1, which targets NRF2 for degradation. Although p62 bodies containing KEAP1 are degraded by autophagy, they accumulate in various liver disorders. Their precise disease role remains unclear. We show that excessive KEAP1 retention in p62 bodies and NRF2 activation are major causes of liver damage when autophagy is impaired. In mice with weakened or blocked p62-KEAP1 interactions, KEAP1 retention and NRF2 activation under autophagy-deficient conditions were suppressed. Transcriptome and proteome analyses reveal that p62 mutants unable to bind KEAP1 normalize the expression of NRF2 targets induced by defective autophagy. Autophagy deficiency causes organelle accumulation, especially of the ER, regardless of p62 mutation. Liver damage and hepatomegaly resulting from autophagy suppression markedly improved in mice carrying p62 mutants, particularly those with blocked KEAP1 binding. These findings highlight excessive KEAP1 retention in p62 bodies and defective organelle turnover as key drivers of liver pathology, underscoring the significance of phase separation in vivo.