Post-acute lung sequelae of COVID-19 are challenging many survivors across the world, yet the mechanisms behind are poorly understood. Our results delineate an inflammatory cascade of events occurring along disease progression within fibrovascular niches. It is initiated by endothelial dysfunction, followed by heme scavenging of CD163+ macrophages and production of CCL18. This chemokine synergizes with local CCL21 upregulation to influence the stromal composition favoring endothelial to mesenchymal transition. The local immune response is further modulated via recruitment of CCR7+ T cells into the expanding fibrovascular niche and imprinting an exhausted, T follicular helper like phenotype in these cells. Eventually, this culminates in the formation of tertiary lymphoid structures, further perpetuating chronic inflammation. Thus, our work presents misdirected immune-stromal interaction mechanisms promoting a self-sustained and non-resolving local immune response that extends beyond active viral infection and leads to profound tissue repurposing and chronic inflammation.