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+# Overview
+
+Node-labeller is a subcomponent of virt-handler responsible for two key tasks:
+
+1. **Inferring host capabilities**: It gathers information such as  `host capabilities`, which is shared with the VM Controller during its setup, creating an unnecessary coupling between these components.
+2. **Labeling nodes**: Based on the inferred capabilities, node-labeller labels nodes at startup, periodically, or when triggered by a `kubevirt` change callback.
+
+## Motivation
+
+The node-labeller has deviated from its primary purpose of simply labeling nodes. It now also handles inferring host capabilities for the VM Controller, a task unrelated to its core function. Most of the capabilities it gathers aren't relevant to node labeling, leading to an overcomplicated design and unnecessary coupling with the VM Controller.
+
+This has resulted in a bloated implementation, especially with the use of the `loadAll` function, which loads data for both node-labeller and VM Controller, making the code harder to test and maintain.
+
+Additionally, node-labeller uses an internal `api` package within the `capabilities` directory that mirrors the functionality of the official libvirtxml package. This duplication exacerbates the aforementioned issues in the codebase and adds redundant layers of complexity, particularly in testing.
+
+## Goals
+
+* **Decouple the inference functionality**: Separate capability inference from node labeling to streamline the node-labeller’s functionality. Improve testing coverage for both labeling and capability parsing, focusing on eliminating file reads in unit tests and introducing tests for affected components that previously lacked test coverage.
+* **Decouple node-labeller and VM Controller**: Deprecate the `node-labeller/api` package and replace it with libvirtxml, ensuring that the VM Controller obtains its required capabilities without relying on node-labeller.
+
+## Non-Goals
+
+* This proposal does **not** aim to extend the functionality of node-labeller or VM Controller, such as adding new labels or introducing more parsing options.
+
+## Definition of Users
+
+This change is not user-facing but affects all users indirectly. The node-labeller’s original functionality remains intact, so no user intervention is required.
+
+## Repos
+
+[KubeVirt](https://github.com/kubevirt/kubevirt)
+
+# Design
+
+The redesigned node-labeller will focus solely on labeling nodes, with all capability inference logic moved to a separate package. This new package will still be part of virt-handler but will provide capabilities as a dependency for both node-labeller and VM Controller. 
+
+The `node-capabilities.sh` script, which currently infers capabilities using the libvirt API and stores them in `/var/lib/kubevirt-node-labeller`, will be adjusted accordingly as node-labeller will no longer handle capability inference.
+
+Node-labeller will now only use specific host-related data (e.g., CPU counters), and its structures and methods will be streamlined to reflect this simpler scope. It will no longer serve as a dependency provider for the VM Controller.
+
+The redundant `node-labeller/api/capabilities` package will be replaced with the existing libvirtxml library. All components currently relying on this package, along with their tests, will be updated to use libvirtxml, completing the decoupling process.
+
+To maintain flexibility, node-labeller's construction will be refactored to use the builder pattern, simplifying its structure while allowing for future extensibility.
+
+At its end state, node-labeller should be a lean, single-file component with core logic and relevant tests.
+
+## Update/Rollback Compatibility
+
+Since this change does not alter the core functionality of any components, updates and rollbacks will be fully compatible.
+
+## Functional Testing Approach
+
+The existing functional tests in `tests/infrastructure/node-labeller.go` cover these changes, ensuring proper functionality.
+
+# Implementation Phases
+
+The node-labeller currently uses the `loadAll` function to infer several host capabilities during its construction. This will be refactored across the following phases:
+
+## Phase I - Remove `loadHostCapabilities`
+
+The `loadHostCapabilities` function populates node-labeller with host capabilities and shares them with the VM Controller. It reads the `capabilities.xml` file from `/var/lib/kubevirt-node-labeller` and unmarshals it into the `Capabilities` struct from `node-labeller/capabilities/api`.
+
+In this phase, `loadHostCapabilities` will be removed, and the `node-labeller/capabilities/api` package will be deprecated in favor of libvirtxml. Additional tests will be added to cover previously untested functionality, such as in `pkg/virt-handler/options.go`.
+
+## Phase II - Remove `loadDomCapabilities`
+
+Similar to Phase I, the `loadDomCapabilities` function retrieves domain capabilities by unmarshaling `virsh_domcapabilities.xml` into the `HostDomCapabilities` struct in `node-labeller/model.go`.
+
+This phase will remove `loadDomCapabilities` and eliminate `node-labeller/model.go`, transitioning to libvirtxml. It will also remove `loadHostSupportedFeatures`, which relies on the same structs.
+
+## Phase III - Introduce the `node-capabilities` Package
+
+A new lightweight `node-capabilities` package (name TBD) will be created to handle capability inference for both node-labeller and VM Controller. Any remaining capability inference logic in node-labeller will be migrated to this package. Node-labeller’s construction will be simplified to use only basic types.