diff --git a/.github/workflows/e2e.yaml b/.github/workflows/e2e.yaml
index 684051d199c1..ae06960907d4 100644
--- a/.github/workflows/e2e.yaml
+++ b/.github/workflows/e2e.yaml
@@ -38,7 +38,7 @@ jobs:
     strategy:
       fail-fast: false
       matrix:
-        etest: [startup, s3, btrfs, externalip, privateregistry, embeddedmirror, wasm]
+        etest: [startup, s3, btrfs, externalip, privateregistry, embeddedmirror, wasm, svcpoliciesandfirewall]
       max-parallel: 3
     steps:
       - name: "Checkout"
diff --git a/pkg/cloudprovider/servicelb.go b/pkg/cloudprovider/servicelb.go
index 0f2e6d4bae97..3aa0fa95ab70 100644
--- a/pkg/cloudprovider/servicelb.go
+++ b/pkg/cloudprovider/servicelb.go
@@ -2,12 +2,12 @@ package cloudprovider
 
 import (
 	"context"
+	"encoding/json"
 	"fmt"
 	"sort"
-	"strconv"
 	"strings"
 	"time"
-	"encoding/json"
+
 	"sigs.k8s.io/yaml"
 
 	"github.com/k3s-io/k3s/pkg/util"
@@ -43,6 +43,7 @@ var (
 	daemonsetNodeLabel     = "svccontroller." + version.Program + ".cattle.io/enablelb"
 	daemonsetNodePoolLabel = "svccontroller." + version.Program + ".cattle.io/lbpool"
 	nodeSelectorLabel      = "svccontroller." + version.Program + ".cattle.io/nodeselector"
+	extTrafficPolicyLabel  = "svccontroller." + version.Program + ".cattle.io/exttrafficpolicy"
 	priorityAnnotation     = "svccontroller." + version.Program + ".cattle.io/priorityclassname"
 	tolerationsAnnotation  = "svccontroller." + version.Program + ".cattle.io/tolerations"
 	controllerName         = names.ServiceLBController
@@ -55,7 +56,7 @@ const (
 )
 
 var (
-	DefaultLBImage = "rancher/klipper-lb:v0.4.9"
+	DefaultLBImage = "rancher/mirrored-library-busybox:1.36.1"
 )
 
 func (k *k3s) Register(ctx context.Context,
@@ -435,35 +436,17 @@ func (k *k3s) newDaemonSet(svc *core.Service) (*apps.DaemonSet, error) {
 	oneInt := intstr.FromInt(1)
 	priorityClassName := k.getPriorityClassName(svc)
 	localTraffic := servicehelper.RequestsOnlyLocalTraffic(svc)
-	sourceRangesSet, err := servicehelper.GetLoadBalancerSourceRanges(svc)
-	if err != nil {
-		return nil, err
-	}
-	sourceRanges := strings.Join(sourceRangesSet.StringSlice(), ",")
 	securityContext := &core.PodSecurityContext{}
 
-	for _, ipFamily := range svc.Spec.IPFamilies {
-		switch ipFamily {
-		case core.IPv4Protocol:
-			securityContext.Sysctls = append(securityContext.Sysctls, core.Sysctl{Name: "net.ipv4.ip_forward", Value: "1"})
-		case core.IPv6Protocol:
-			securityContext.Sysctls = append(securityContext.Sysctls, core.Sysctl{Name: "net.ipv6.conf.all.forwarding", Value: "1"})
-			if sourceRanges == "0.0.0.0/0" {
-				// The upstream default load-balancer source range only includes IPv4, even if the service is IPv6-only or dual-stack.
-				// If using the default range, and IPv6 is enabled, also allow IPv6.
-				sourceRanges += ",::/0"
-			}
-		}
-	}
-
 	ds := &apps.DaemonSet{
 		ObjectMeta: meta.ObjectMeta{
 			Name:      name,
 			Namespace: k.LBNamespace,
 			Labels: labels.Set{
-				nodeSelectorLabel: "false",
-				svcNameLabel:      svc.Name,
-				svcNamespaceLabel: svc.Namespace,
+				nodeSelectorLabel:     "false",
+				svcNameLabel:          svc.Name,
+				svcNamespaceLabel:     svc.Namespace,
+				extTrafficPolicyLabel: "Cluster",
 			},
 		},
 		TypeMeta: meta.TypeMeta{
@@ -522,6 +505,7 @@ func (k *k3s) newDaemonSet(svc *core.Service) (*apps.DaemonSet, error) {
 			Name:            portName,
 			Image:           k.LBImage,
 			ImagePullPolicy: core.PullIfNotPresent,
+			Command:         []string{"sleep", "inf"},
 			Ports: []core.ContainerPort{
 				{
 					Name:          portName,
@@ -530,57 +514,7 @@ func (k *k3s) newDaemonSet(svc *core.Service) (*apps.DaemonSet, error) {
 					Protocol:      port.Protocol,
 				},
 			},
-			Env: []core.EnvVar{
-				{
-					Name:  "SRC_PORT",
-					Value: strconv.Itoa(int(port.Port)),
-				},
-				{
-					Name:  "SRC_RANGES",
-					Value: sourceRanges,
-				},
-				{
-					Name:  "DEST_PROTO",
-					Value: string(port.Protocol),
-				},
-			},
-			SecurityContext: &core.SecurityContext{
-				Capabilities: &core.Capabilities{
-					Add: []core.Capability{
-						"NET_ADMIN",
-					},
-				},
-			},
-		}
-
-		if localTraffic {
-			container.Env = append(container.Env,
-				core.EnvVar{
-					Name:  "DEST_PORT",
-					Value: strconv.Itoa(int(port.NodePort)),
-				},
-				core.EnvVar{
-					Name: "DEST_IPS",
-					ValueFrom: &core.EnvVarSource{
-						FieldRef: &core.ObjectFieldSelector{
-							FieldPath: getHostIPsFieldPath(),
-						},
-					},
-				},
-			)
-		} else {
-			container.Env = append(container.Env,
-				core.EnvVar{
-					Name:  "DEST_PORT",
-					Value: strconv.Itoa(int(port.Port)),
-				},
-				core.EnvVar{
-					Name:  "DEST_IPS",
-					Value: strings.Join(svc.Spec.ClusterIPs, ","),
-				},
-			)
 		}
-
 		ds.Spec.Template.Spec.Containers = append(ds.Spec.Template.Spec.Containers, container)
 	}
 
@@ -608,6 +542,11 @@ func (k *k3s) newDaemonSet(svc *core.Service) (*apps.DaemonSet, error) {
 	}
 	ds.Spec.Template.Spec.Tolerations = append(ds.Spec.Template.Spec.Tolerations, tolerations...)
 
+	// Change the label to force the DaemonSet to update and call onPodChange if the ExternalTrafficPolicy changes
+	if localTraffic {
+		ds.Spec.Template.Labels[extTrafficPolicyLabel] = "Local"
+	}
+
 	return ds, nil
 }
 
@@ -710,8 +649,8 @@ func (k *k3s) getPriorityClassName(svc *core.Service) string {
 	return k.LBDefaultPriorityClassName
 }
 
-// getTolerations retrieves the tolerations from a service's annotations. 
-// It parses the tolerations from a JSON or YAML string stored in the annotations. 
+// getTolerations retrieves the tolerations from a service's annotations.
+// It parses the tolerations from a JSON or YAML string stored in the annotations.
 func (k *k3s) getTolerations(svc *core.Service) ([]core.Toleration, error) {
 	tolerationsStr, ok := svc.Annotations[tolerationsAnnotation]
 	if !ok {
diff --git a/scripts/airgap/image-list.txt b/scripts/airgap/image-list.txt
index 3f700553e029..62ee4ef7adc0 100644
--- a/scripts/airgap/image-list.txt
+++ b/scripts/airgap/image-list.txt
@@ -1,5 +1,4 @@
 docker.io/rancher/klipper-helm:v0.9.3-build20241008
-docker.io/rancher/klipper-lb:v0.4.9
 docker.io/rancher/local-path-provisioner:v0.0.30
 docker.io/rancher/mirrored-coredns-coredns:1.11.3
 docker.io/rancher/mirrored-library-busybox:1.36.1
diff --git a/updatecli/updatecli.d/klipper-lb.yaml b/updatecli/updatecli.d/klipper-lb.yaml
deleted file mode 100644
index 28fc57e77de2..000000000000
--- a/updatecli/updatecli.d/klipper-lb.yaml
+++ /dev/null
@@ -1,71 +0,0 @@
----
-name: "Bump Klipper LB version"
-scms:
-  k3s:
-    kind: "github"
-    spec:
-      user: "{{ .github.user }}"
-      email: "{{ .github.email }}"
-      username: "{{ .github.username }}"
-      token: "{{ requiredEnv .github.token }}"
-      owner: "{{ .k3s.org }}"
-      repository: "{{ .k3s.repo }}"
-      branch: "{{ .k3s.branch }}"
-      commitmessage:
-        title: "Bump Klipper LB version"
-  klipper-lb:
-    kind: "github"
-    spec:
-      user: "{{ .github.user }}"
-      email: "{{ .github.email }}"
-      username: "{{ .github.username }}"
-      token: "{{ requiredEnv .github.token }}"
-      owner: "{{ .k3s.org }}"
-      repository: "{{ .klipper_lb.repo }}"
-      branch: "{{ .klipper_lb.branch }}"
-
-actions:
-  github:
-    title: "Bump Klipper LB version"
-    kind: "github/pullrequest"
-    scmid: "k3s"
-    spec:
-      automerge: false
-      mergemethod: "squash"
-      usetitleforautomerge: true
-      parent: false
-      labels: 
-        - "dependencies"
-
-sources:
-  klipper-lb:
-    name: "Get Klipper LB latest release version"
-    kind: "githubrelease"
-    spec:
-      owner: "{{ .klipper_lb.org }}"
-      repository: "{{ .klipper_lb.repo }}"
-      branch: "{{ .klipper_lb.branch }}"
-      token: "{{ requiredEnv .github.token }}"
-      versionfilter:
-        kind: "latest"
-
-conditions:
-  klipper-lb:
-    name: "Check rancher/klipper-lb image version in DockerHub"
-    kind: "dockerimage"
-    sourceid: "klipper-lb"
-    spec:
-      image: "rancher/klipper-lb"
-
-targets:
-  klipper-lb:
-    name: "Update rancher/klipper-lb image versions"
-    kind: "file"
-    scmid: "k3s"
-    sourceid: "klipper-lb"
-    spec:
-      files:
-        - "pkg/cloudprovider/servicelb.go"
-        - "scripts/airgap/image-list.txt"
-      matchpattern: 'rancher/klipper-lb:v\d+\.\d+\.\d+(-\w+)?'
-      replacepattern: 'rancher/klipper-lb:{{ source "klipper-lb" }}'
diff --git a/updatecli/values.yaml b/updatecli/values.yaml
index 5b46fade560b..3890caedbe3e 100644
--- a/updatecli/values.yaml
+++ b/updatecli/values.yaml
@@ -11,10 +11,6 @@ klipper_helm:
   org: "k3s-io"
   repo: "klipper-helm"
   branch: "master"
-klipper_lb:
-  org: "k3s-io"
-  repo: "klipper-lb"
-  branch: "master"
 local_path_provisioner:
   org: "rancher"
   repo: "local-path-provisioner"