I'm still a bit baffled that a 3.5 MB increase on a 700MB live
is considered a complete showstopper. ...
Another place to check is the raw filesystem size before adding payload
and before compressing. The unused space squashes "nicely" because it
was created as zero on purpose, but still can occupy a significant
fraction of a megabyte because each 128KB block is squashed separately.
Start with a filesystem that is closer to the size of the total payload.