Caspian will do this sometimes. What I've found to work quite well is move away the moment he uses teeth. Usually shifting my weight is enough to make him stop instantly, but if he's particularly "teethy," I can walk away entirely.
However, that hasn't stopped it completely, but it really makes him think... he'll lick and lick and nuzzle and think and think and after a really long time can't... quite... not use his teeth.
But he is learning.
I think they can tell the difference between clothes and skin, and where one ends and the other begins, or at least, it seems that Caspian does. He's usually supremely careful not to bite my skin or hair, but will play with my clothes and pull at them occasionally. Actually, once he was playing with my hair, and ever so carefully, took my hair band in his teeth and pulled it off. Never getting a hair on my head!
(Then I was terrified he was going to swallow it and colic or something, but he spit it out.
)