diff --git a/tests/files/custom_cni/cilium.yaml b/tests/files/custom_cni/cilium.yaml
index 9bd3bfbe4..c89ae15eb 100644
--- a/tests/files/custom_cni/cilium.yaml
+++ b/tests/files/custom_cni/cilium.yaml
@@ -6,6 +6,13 @@ metadata:
   name: "cilium"
   namespace: kube-system
 ---
+# Source: cilium/templates/cilium-envoy/serviceaccount.yaml
+apiVersion: v1
+kind: ServiceAccount
+metadata:
+  name: "cilium-envoy"
+  namespace: kube-system
+---
 # Source: cilium/templates/cilium-operator/serviceaccount.yaml
 apiVersion: v1
 kind: ServiceAccount
@@ -36,9 +43,6 @@ data:
   identity-gc-interval: "15m0s"
   cilium-endpoint-gc-interval: "5m0s"
   nodes-gc-interval: "5m0s"
-  skip-cnp-status-startup-clean: "false"
-  # Disable the usage of CiliumEndpoint CRD
-  disable-endpoint-crd: "false"
 
   # If you want to run cilium in debug mode change this value to true
   debug: "false"
@@ -47,6 +51,13 @@ data:
   # default, always and never.
   # https://docs.cilium.io/en/latest/security/policy/intro/#policy-enforcement-modes
   enable-policy: "default"
+  policy-cidr-match-mode: ""
+  # If you want metrics enabled in cilium-operator, set the port for
+  # which the Cilium Operator will have their metrics exposed.
+  # NOTE that this will open the port on the nodes where Cilium operator pod
+  # is scheduled.
+  operator-prometheus-serve-addr: ":9963"
+  enable-metrics: "true"
 
   # Enable IPv4 addressing. If enabled, all endpoints are allocated an IPv4
   # address.
@@ -58,7 +69,7 @@ data:
   # Users who wish to specify their own custom CNI configuration file must set
   # custom-cni-conf to "true", otherwise Cilium may overwrite the configuration.
   custom-cni-conf: "false"
-  enable-bpf-clock-probe: "true"
+  enable-bpf-clock-probe: "false"
   # If you want cilium monitor to aggregate tracing for packets, set this level
   # to "low", "medium", or "maximum". The higher the level, the less packets
   # that will be seen in monitor output.
@@ -86,6 +97,10 @@ data:
   bpf-lb-map-max: "65536"
   bpf-lb-external-clusterip: "false"
 
+  bpf-events-drop-enabled: "true"
+  bpf-events-policy-verdict-enabled: "true"
+  bpf-events-trace-enabled: "true"
+
   # Pre-allocation of map entries allows per-packet latency to be reduced, at
   # the expense of up-front memory allocation for the entries in the maps. The
   # default value below will minimize memory usage in the default installation;
@@ -103,10 +118,6 @@ data:
   # 1.4 or later, then it may cause one-time disruptions during the upgrade.
   preallocate-bpf-maps: "false"
 
-  # Regular expression matching compatible Istio sidecar istio-proxy
-  # container image names
-  sidecar-istio-proxy-image: "cilium/istio_proxy"
-
   # Name of the cluster. Only relevant when building a mesh of clusters.
   cluster-name: default
   # Unique ID of the cluster. Must be unique across all conneted clusters and
@@ -118,63 +129,444 @@ data:
   #   - disabled
   #   - vxlan (default)
   #   - geneve
-  tunnel: "vxlan"
+  # Default case
+  routing-mode: "tunnel"
+  tunnel-protocol: "vxlan"
+  service-no-backend-response: "reject"
 
 
   # Enables L7 proxy for L7 policy enforcement and visibility
   enable-l7-proxy: "true"
 
   enable-ipv4-masquerade: "true"
+  enable-ipv4-big-tcp: "false"
   enable-ipv6-big-tcp: "false"
   enable-ipv6-masquerade: "true"
+  enable-tcx: "true"
+  datapath-mode: "veth"
+  enable-masquerade-to-route-source: "false"
 
   enable-xt-socket-fallback: "true"
-  install-iptables-rules: "true"
   install-no-conntrack-iptables-rules: "false"
 
   auto-direct-node-routes: "false"
+  direct-routing-skip-unreachable: "false"
   enable-local-redirect-policy: "false"
+  enable-runtime-device-detection: "true"
 
-  kube-proxy-replacement: "disabled"
+  kube-proxy-replacement: "false"
+  kube-proxy-replacement-healthz-bind-address: ""
   bpf-lb-sock: "false"
+  bpf-lb-sock-terminate-pod-connections: "false"
+  enable-host-port: "false"
+  enable-external-ips: "false"
+  enable-node-port: "false"
+  nodeport-addresses: ""
   enable-health-check-nodeport: "true"
+  enable-health-check-loadbalancer-ip: "false"
   node-port-bind-protection: "true"
   enable-auto-protect-node-port-range: "true"
+  bpf-lb-acceleration: "disabled"
   enable-svc-source-range-check: "true"
   enable-l2-neigh-discovery: "true"
   arping-refresh-period: "30s"
+  k8s-require-ipv4-pod-cidr: "false"
+  k8s-require-ipv6-pod-cidr: "false"
+  enable-k8s-networkpolicy: "true"
+  # Tell the agent to generate and write a CNI configuration file
+  write-cni-conf-when-ready: /host/etc/cni/net.d/05-cilium.conflist
+  cni-exclusive: "true"
+  cni-log-file: "/var/run/cilium/cilium-cni.log"
   enable-endpoint-health-checking: "true"
   enable-health-checking: "true"
   enable-well-known-identities: "false"
-  enable-remote-node-identity: "true"
+  enable-node-selector-labels: "false"
   synchronize-k8s-nodes: "true"
   operator-api-serve-addr: "127.0.0.1:9234"
   ipam: "cluster-pool"
+  ipam-cilium-node-update-rate: "15s"
   cluster-pool-ipv4-cidr: "{{ kube_pods_subnet }}"
   cluster-pool-ipv4-mask-size: "24"
-  disable-cnp-status-updates: "true"
+  egress-gateway-reconciliation-trigger-interval: "1s"
   enable-vtep: "false"
   vtep-endpoint: ""
   vtep-cidr: ""
   vtep-mask: ""
   vtep-mac: ""
-  enable-bgp-control-plane: "false"
   procfs: "/host/proc"
   bpf-root: "/sys/fs/bpf"
   cgroup-root: "/run/cilium/cgroupv2"
   enable-k8s-terminating-endpoint: "true"
   enable-sctp: "false"
+
+  k8s-client-qps: "10"
+  k8s-client-burst: "20"
   remove-cilium-node-taints: "true"
+  set-cilium-node-taints: "true"
   set-cilium-is-up-condition: "true"
   unmanaged-pod-watcher-interval: "15"
+  # default DNS proxy to transparent mode in non-chaining modes
+  dnsproxy-enable-transparent-mode: "true"
+  dnsproxy-socket-linger-timeout: "10"
   tofqdns-dns-reject-response-code: "refused"
   tofqdns-enable-dns-compression: "true"
   tofqdns-endpoint-max-ip-per-hostname: "50"
   tofqdns-idle-connection-grace-period: "0s"
   tofqdns-max-deferred-connection-deletes: "10000"
-  tofqdns-min-ttl: "3600"
   tofqdns-proxy-response-max-delay: "100ms"
   agent-not-ready-taint-key: "node.cilium.io/agent-not-ready"
+
+  mesh-auth-enabled: "true"
+  mesh-auth-queue-size: "1024"
+  mesh-auth-rotated-identities-queue-size: "1024"
+  mesh-auth-gc-interval: "5m0s"
+
+  proxy-xff-num-trusted-hops-ingress: "0"
+  proxy-xff-num-trusted-hops-egress: "0"
+  proxy-connect-timeout: "2"
+  proxy-max-requests-per-connection: "0"
+  proxy-max-connection-duration-seconds: "0"
+  proxy-idle-timeout-seconds: "60"
+
+  external-envoy-proxy: "true"
+  envoy-base-id: "0"
+
+  envoy-keep-cap-netbindservice: "false"
+  max-connected-clusters: "255"
+  clustermesh-enable-endpoint-sync: "false"
+  clustermesh-enable-mcs-api: "false"
+
+  nat-map-stats-entries: "32"
+  nat-map-stats-interval: "30s"
+
+# Extra config allows adding arbitrary properties to the cilium config.
+# By putting it at the end of the ConfigMap, it's also possible to override existing properties.
+---
+# Source: cilium/templates/cilium-envoy/configmap.yaml
+apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: cilium-envoy-config
+  namespace: kube-system
+data:
+  bootstrap-config.json: |
+    {
+      "node": {
+        "id": "host~127.0.0.1~no-id~localdomain",
+        "cluster": "ingress-cluster"
+      },
+      "staticResources": {
+        "listeners": [
+          {
+            "name": "envoy-prometheus-metrics-listener",
+            "address": {
+              "socket_address": {
+                "address": "0.0.0.0",
+                "port_value": 9964
+              }
+            },
+            "filter_chains": [
+              {
+                "filters": [
+                  {
+                    "name": "envoy.filters.network.http_connection_manager",
+                    "typed_config": {
+                      "@type": "type.googleapis.com/envoy.extensions.filters.network.http_connection_manager.v3.HttpConnectionManager",
+                      "stat_prefix": "envoy-prometheus-metrics-listener",
+                      "route_config": {
+                        "virtual_hosts": [
+                          {
+                            "name": "prometheus_metrics_route",
+                            "domains": [
+                              "*"
+                            ],
+                            "routes": [
+                              {
+                                "name": "prometheus_metrics_route",
+                                "match": {
+                                  "prefix": "/metrics"
+                                },
+                                "route": {
+                                  "cluster": "/envoy-admin",
+                                  "prefix_rewrite": "/stats/prometheus"
+                                }
+                              }
+                            ]
+                          }
+                        ]
+                      },
+                      "http_filters": [
+                        {
+                          "name": "envoy.filters.http.router",
+                          "typed_config": {
+                            "@type": "type.googleapis.com/envoy.extensions.filters.http.router.v3.Router"
+                          }
+                        }
+                      ],
+                      "stream_idle_timeout": "0s"
+                    }
+                  }
+                ]
+              }
+            ]
+          },
+          {
+            "name": "envoy-health-listener",
+            "address": {
+              "socket_address": {
+                "address": "127.0.0.1",
+                "port_value": 9878
+              }
+            },
+            "filter_chains": [
+              {
+                "filters": [
+                  {
+                    "name": "envoy.filters.network.http_connection_manager",
+                    "typed_config": {
+                      "@type": "type.googleapis.com/envoy.extensions.filters.network.http_connection_manager.v3.HttpConnectionManager",
+                      "stat_prefix": "envoy-health-listener",
+                      "route_config": {
+                        "virtual_hosts": [
+                          {
+                            "name": "health",
+                            "domains": [
+                              "*"
+                            ],
+                            "routes": [
+                              {
+                                "name": "health",
+                                "match": {
+                                  "prefix": "/healthz"
+                                },
+                                "route": {
+                                  "cluster": "/envoy-admin",
+                                  "prefix_rewrite": "/ready"
+                                }
+                              }
+                            ]
+                          }
+                        ]
+                      },
+                      "http_filters": [
+                        {
+                          "name": "envoy.filters.http.router",
+                          "typed_config": {
+                            "@type": "type.googleapis.com/envoy.extensions.filters.http.router.v3.Router"
+                          }
+                        }
+                      ],
+                      "stream_idle_timeout": "0s"
+                    }
+                  }
+                ]
+              }
+            ]
+          }
+        ],
+        "clusters": [
+          {
+            "name": "ingress-cluster",
+            "type": "ORIGINAL_DST",
+            "connectTimeout": "2s",
+            "lbPolicy": "CLUSTER_PROVIDED",
+            "typedExtensionProtocolOptions": {
+              "envoy.extensions.upstreams.http.v3.HttpProtocolOptions": {
+                "@type": "type.googleapis.com/envoy.extensions.upstreams.http.v3.HttpProtocolOptions",
+                "commonHttpProtocolOptions": {
+                  "idleTimeout": "60s",
+                  "maxConnectionDuration": "0s",
+                  "maxRequestsPerConnection": 0
+                },
+                "useDownstreamProtocolConfig": {}
+              }
+            },
+            "cleanupInterval": "2.500s"
+          },
+          {
+            "name": "egress-cluster-tls",
+            "type": "ORIGINAL_DST",
+            "connectTimeout": "2s",
+            "lbPolicy": "CLUSTER_PROVIDED",
+            "typedExtensionProtocolOptions": {
+              "envoy.extensions.upstreams.http.v3.HttpProtocolOptions": {
+                "@type": "type.googleapis.com/envoy.extensions.upstreams.http.v3.HttpProtocolOptions",
+                "commonHttpProtocolOptions": {
+                  "idleTimeout": "60s",
+                  "maxConnectionDuration": "0s",
+                  "maxRequestsPerConnection": 0
+                },
+                "upstreamHttpProtocolOptions": {},
+                "useDownstreamProtocolConfig": {}
+              }
+            },
+            "cleanupInterval": "2.500s",
+            "transportSocket": {
+              "name": "cilium.tls_wrapper",
+              "typedConfig": {
+                "@type": "type.googleapis.com/cilium.UpstreamTlsWrapperContext"
+              }
+            }
+          },
+          {
+            "name": "egress-cluster",
+            "type": "ORIGINAL_DST",
+            "connectTimeout": "2s",
+            "lbPolicy": "CLUSTER_PROVIDED",
+            "typedExtensionProtocolOptions": {
+              "envoy.extensions.upstreams.http.v3.HttpProtocolOptions": {
+                "@type": "type.googleapis.com/envoy.extensions.upstreams.http.v3.HttpProtocolOptions",
+                "commonHttpProtocolOptions": {
+                  "idleTimeout": "60s",
+                  "maxConnectionDuration": "0s",
+                  "maxRequestsPerConnection": 0
+                },
+                "useDownstreamProtocolConfig": {}
+              }
+            },
+            "cleanupInterval": "2.500s"
+          },
+          {
+            "name": "ingress-cluster-tls",
+            "type": "ORIGINAL_DST",
+            "connectTimeout": "2s",
+            "lbPolicy": "CLUSTER_PROVIDED",
+            "typedExtensionProtocolOptions": {
+              "envoy.extensions.upstreams.http.v3.HttpProtocolOptions": {
+                "@type": "type.googleapis.com/envoy.extensions.upstreams.http.v3.HttpProtocolOptions",
+                "commonHttpProtocolOptions": {
+                  "idleTimeout": "60s",
+                  "maxConnectionDuration": "0s",
+                  "maxRequestsPerConnection": 0
+                },
+                "upstreamHttpProtocolOptions": {},
+                "useDownstreamProtocolConfig": {}
+              }
+            },
+            "cleanupInterval": "2.500s",
+            "transportSocket": {
+              "name": "cilium.tls_wrapper",
+              "typedConfig": {
+                "@type": "type.googleapis.com/cilium.UpstreamTlsWrapperContext"
+              }
+            }
+          },
+          {
+            "name": "xds-grpc-cilium",
+            "type": "STATIC",
+            "connectTimeout": "2s",
+            "loadAssignment": {
+              "clusterName": "xds-grpc-cilium",
+              "endpoints": [
+                {
+                  "lbEndpoints": [
+                    {
+                      "endpoint": {
+                        "address": {
+                          "pipe": {
+                            "path": "/var/run/cilium/envoy/sockets/xds.sock"
+                          }
+                        }
+                      }
+                    }
+                  ]
+                }
+              ]
+            },
+            "typedExtensionProtocolOptions": {
+              "envoy.extensions.upstreams.http.v3.HttpProtocolOptions": {
+                "@type": "type.googleapis.com/envoy.extensions.upstreams.http.v3.HttpProtocolOptions",
+                "explicitHttpConfig": {
+                  "http2ProtocolOptions": {}
+                }
+              }
+            }
+          },
+          {
+            "name": "/envoy-admin",
+            "type": "STATIC",
+            "connectTimeout": "2s",
+            "loadAssignment": {
+              "clusterName": "/envoy-admin",
+              "endpoints": [
+                {
+                  "lbEndpoints": [
+                    {
+                      "endpoint": {
+                        "address": {
+                          "pipe": {
+                            "path": "/var/run/cilium/envoy/sockets/admin.sock"
+                          }
+                        }
+                      }
+                    }
+                  ]
+                }
+              ]
+            }
+          }
+        ]
+      },
+      "dynamicResources": {
+        "ldsConfig": {
+          "apiConfigSource": {
+            "apiType": "GRPC",
+            "transportApiVersion": "V3",
+            "grpcServices": [
+              {
+                "envoyGrpc": {
+                  "clusterName": "xds-grpc-cilium"
+                }
+              }
+            ],
+            "setNodeOnFirstMessageOnly": true
+          },
+          "resourceApiVersion": "V3"
+        },
+        "cdsConfig": {
+          "apiConfigSource": {
+            "apiType": "GRPC",
+            "transportApiVersion": "V3",
+            "grpcServices": [
+              {
+                "envoyGrpc": {
+                  "clusterName": "xds-grpc-cilium"
+                }
+              }
+            ],
+            "setNodeOnFirstMessageOnly": true
+          },
+          "resourceApiVersion": "V3"
+        }
+      },
+      "bootstrapExtensions": [
+        {
+          "name": "envoy.bootstrap.internal_listener",
+          "typed_config": {
+            "@type": "type.googleapis.com/envoy.extensions.bootstrap.internal_listener.v3.InternalListener"
+          }
+        }
+      ],
+      "layeredRuntime": {
+        "layers": [
+          {
+            "name": "static_layer_0",
+            "staticLayer": {
+              "overload": {
+                "global_downstream_max_connections": 50000
+              }
+            }
+          }
+        ]
+      },
+      "admin": {
+        "address": {
+          "pipe": {
+            "path": "/var/run/cilium/envoy/sockets/admin.sock"
+          }
+        }
+      }
+    }
 ---
 # Source: cilium/templates/cilium-agent/clusterrole.yaml
 apiVersion: rbac.authorization.k8s.io/v1
@@ -228,6 +620,9 @@ rules:
   resources:
   - ciliumloadbalancerippools
   - ciliumbgppeeringpolicies
+  - ciliumbgpnodeconfigs
+  - ciliumbgpadvertisements
+  - ciliumbgppeerconfigs
   - ciliumclusterwideenvoyconfigs
   - ciliumclusterwidenetworkpolicies
   - ciliumegressgatewaypolicies
@@ -239,6 +634,9 @@ rules:
   - ciliumnetworkpolicies
   - ciliumnodes
   - ciliumnodeconfigs
+  - ciliumcidrgroups
+  - ciliuml2announcementpolicies
+  - ciliumpodippools
   verbs:
   - list
   - watch
@@ -275,10 +673,10 @@ rules:
 - apiGroups:
   - cilium.io
   resources:
-  - ciliumnetworkpolicies/status
-  - ciliumclusterwidenetworkpolicies/status
   - ciliumendpoints/status
   - ciliumendpoints
+  - ciliuml2announcementpolicies/status
+  - ciliumbgpnodeconfigs/status
   verbs:
   - patch
 ---
@@ -301,6 +699,15 @@ rules:
   # to automatically delete [core|kube]dns pods so that are starting to being
   # managed by Cilium
   - delete
+- apiGroups:
+  - ""
+  resources:
+  - configmaps
+  resourceNames:
+  - cilium-config
+  verbs:
+   # allow patching of the configmap to set annotations
+  - patch
 - apiGroups:
   - ""
   resources:
@@ -416,6 +823,9 @@ rules:
   resources:
   - ciliumendpointslices
   - ciliumenvoyconfigs
+  - ciliumbgppeerconfigs
+  - ciliumbgpadvertisements
+  - ciliumbgpnodeconfigs
   verbs:
   - create
   - update
@@ -442,6 +852,11 @@ rules:
   resourceNames:
   - ciliumloadbalancerippools.cilium.io
   - ciliumbgppeeringpolicies.cilium.io
+  - ciliumbgpclusterconfigs.cilium.io
+  - ciliumbgppeerconfigs.cilium.io
+  - ciliumbgpadvertisements.cilium.io
+  - ciliumbgpnodeconfigs.cilium.io
+  - ciliumbgpnodeconfigoverrides.cilium.io
   - ciliumclusterwideenvoyconfigs.cilium.io
   - ciliumclusterwidenetworkpolicies.cilium.io
   - ciliumegressgatewaypolicies.cilium.io
@@ -454,14 +869,27 @@ rules:
   - ciliumnetworkpolicies.cilium.io
   - ciliumnodes.cilium.io
   - ciliumnodeconfigs.cilium.io
+  - ciliumcidrgroups.cilium.io
+  - ciliuml2announcementpolicies.cilium.io
+  - ciliumpodippools.cilium.io
 - apiGroups:
   - cilium.io
   resources:
   - ciliumloadbalancerippools
+  - ciliumpodippools
+  - ciliumbgppeeringpolicies
+  - ciliumbgpclusterconfigs
+  - ciliumbgpnodeconfigoverrides
   verbs:
   - get
   - list
   - watch
+- apiGroups:
+    - cilium.io
+  resources:
+    - ciliumpodippools
+  verbs:
+    - create
 - apiGroups:
   - cilium.io
   resources:
@@ -550,6 +978,31 @@ subjects:
     name: "cilium"
     namespace: kube-system
 ---
+# Source: cilium/templates/cilium-envoy/service.yaml
+apiVersion: v1
+kind: Service
+metadata:
+  name: cilium-envoy
+  namespace: kube-system
+  annotations:
+    prometheus.io/scrape: "true"
+    prometheus.io/port: "9964"
+  labels:
+    k8s-app: cilium-envoy
+    app.kubernetes.io/name: cilium-envoy
+    app.kubernetes.io/part-of: cilium
+    io.cilium/app: proxy
+spec:
+  clusterIP: None
+  type: ClusterIP
+  selector:
+    k8s-app: cilium-envoy
+  ports:
+  - name: envoy-metrics
+    port: 9964
+    protocol: TCP
+    targetPort: envoy-metrics
+---
 # Source: cilium/templates/cilium-agent/daemonset.yaml
 apiVersion: apps/v1
 kind: DaemonSet
@@ -571,21 +1024,17 @@ spec:
   template:
     metadata:
       annotations:
-        # Set app AppArmor's profile to "unconfined". The value of this annotation
-        # can be modified as long users know which profiles they have available
-        # in AppArmor.
-        container.apparmor.security.beta.kubernetes.io/cilium-agent: "unconfined"
-        container.apparmor.security.beta.kubernetes.io/clean-cilium-state: "unconfined"
-        container.apparmor.security.beta.kubernetes.io/mount-cgroup: "unconfined"
-        container.apparmor.security.beta.kubernetes.io/apply-sysctl-overwrites: "unconfined"
       labels:
         k8s-app: cilium
         app.kubernetes.io/name: cilium-agent
         app.kubernetes.io/part-of: cilium
     spec:
+      securityContext:
+        appArmorProfile:
+          type: Unconfined
       containers:
       - name: cilium-agent
-        image: "quay.io/cilium/cilium:v1.13.0@sha256:6544a3441b086a2e09005d3e21d1a4afb216fae19c5a60b35793c8a9438f8f68"
+        image: "quay.io/cilium/cilium:v1.16.3@sha256:62d2a09bbef840a46099ac4c69421c90f84f28d018d479749049011329aa7f28"
         imagePullPolicy: IfNotPresent
         command:
         - cilium-agent
@@ -603,6 +1052,7 @@ spec:
           failureThreshold: 105
           periodSeconds: 2
           successThreshold: 1
+          initialDelaySeconds: 5
         livenessProbe:
           httpGet:
             host: "127.0.0.1"
@@ -642,26 +1092,38 @@ spec:
               fieldPath: metadata.namespace
         - name: CILIUM_CLUSTERMESH_CONFIG
           value: /var/lib/cilium/clustermesh/
-        - name: CILIUM_CNI_CHAINING_MODE
-          valueFrom:
-            configMapKeyRef:
-              name: cilium-config
-              key: cni-chaining-mode
-              optional: true
-        - name: CILIUM_CUSTOM_CNI_CONF
+        - name: GOMEMLIMIT
           valueFrom:
-            configMapKeyRef:
-              name: cilium-config
-              key: custom-cni-conf
-              optional: true
+            resourceFieldRef:
+              resource: limits.memory
+              divisor: '1'
         lifecycle:
           postStart:
             exec:
               command:
-              - "/cni-install.sh"
-              - "--enable-debug=false"
-              - "--cni-exclusive=true"
-              - "--log-file=/var/run/cilium/cilium-cni.log"
+              - "bash"
+              - "-c"
+              - |
+                    set -o errexit
+                    set -o pipefail
+                    set -o nounset
+
+                    # When running in AWS ENI mode, it's likely that 'aws-node' has
+                    # had a chance to install SNAT iptables rules. These can result
+                    # in dropped traffic, so we should attempt to remove them.
+                    # We do it using a 'postStart' hook since this may need to run
+                    # for nodes which might have already been init'ed but may still
+                    # have dangling rules. This is safe because there are no
+                    # dependencies on anything that is part of the startup script
+                    # itself, and can be safely run multiple times per node (e.g. in
+                    # case of a restart).
+                    if [[ "$(iptables-save | grep -E -c 'AWS-SNAT-CHAIN|AWS-CONNMARK-CHAIN')" != "0" ]];
+                    then
+                        echo 'Deleting iptables rules created by the AWS CNI VPC plugin'
+                        iptables-save | grep -E -v 'AWS-SNAT-CHAIN|AWS-CONNMARK-CHAIN' | iptables-restore
+                    fi
+                    echo 'Done!'
+
           preStop:
             exec:
               command:
@@ -688,6 +1150,9 @@ spec:
               - ALL
         terminationMessagePolicy: FallbackToLogsOnError
         volumeMounts:
+        - name: envoy-sockets
+          mountPath: /var/run/cilium/envoy/sockets
+          readOnly: false
         # Unprivileged containers need to mount /proc/sys/net from the host
         # to have write access
         - mountPath: /host/proc/sys/net
@@ -705,8 +1170,6 @@ spec:
           mountPropagation: HostToContainer
         - name: cilium-run
           mountPath: /var/run/cilium
-        - name: cni-path
-          mountPath: /host/opt/cni/bin
         - name: etc-cni-netd
           mountPath: /host/etc/cni/net.d
         - name: clustermesh-secrets
@@ -722,10 +1185,10 @@ spec:
           mountPath: /tmp
       initContainers:
       - name: config
-        image: "quay.io/cilium/cilium:v1.13.0@sha256:6544a3441b086a2e09005d3e21d1a4afb216fae19c5a60b35793c8a9438f8f68"
+        image: "quay.io/cilium/cilium:v1.16.3@sha256:62d2a09bbef840a46099ac4c69421c90f84f28d018d479749049011329aa7f28"
         imagePullPolicy: IfNotPresent
         command:
-        - cilium
+        - cilium-dbg
         - build-config
         env:
         - name: K8S_NODE_NAME
@@ -745,7 +1208,7 @@ spec:
       # Required to mount cgroup2 filesystem on the underlying Kubernetes node.
       # We use nsenter command with host's cgroup and mount namespaces enabled.
       - name: mount-cgroup
-        image: "quay.io/cilium/cilium:v1.13.0@sha256:6544a3441b086a2e09005d3e21d1a4afb216fae19c5a60b35793c8a9438f8f68"
+        image: "quay.io/cilium/cilium:v1.16.3@sha256:62d2a09bbef840a46099ac4c69421c90f84f28d018d479749049011329aa7f28"
         imagePullPolicy: IfNotPresent
         env:
         - name: CGROUP_ROOT
@@ -782,7 +1245,7 @@ spec:
             drop:
               - ALL
       - name: apply-sysctl-overwrites
-        image: "quay.io/cilium/cilium:v1.13.0@sha256:6544a3441b086a2e09005d3e21d1a4afb216fae19c5a60b35793c8a9438f8f68"
+        image: "quay.io/cilium/cilium:v1.16.3@sha256:62d2a09bbef840a46099ac4c69421c90f84f28d018d479749049011329aa7f28"
         imagePullPolicy: IfNotPresent
         env:
         - name: BIN_PATH
@@ -820,7 +1283,7 @@ spec:
       # from a privileged container because the mount propagation bidirectional
       # only works from privileged containers.
       - name: mount-bpf-fs
-        image: "quay.io/cilium/cilium:v1.13.0@sha256:6544a3441b086a2e09005d3e21d1a4afb216fae19c5a60b35793c8a9438f8f68"
+        image: "quay.io/cilium/cilium:v1.16.3@sha256:62d2a09bbef840a46099ac4c69421c90f84f28d018d479749049011329aa7f28"
         imagePullPolicy: IfNotPresent
         args:
         - 'mount | grep "/sys/fs/bpf type bpf" || mount -t bpf bpf /sys/fs/bpf'
@@ -836,7 +1299,7 @@ spec:
           mountPath: /sys/fs/bpf
           mountPropagation: Bidirectional
       - name: clean-cilium-state
-        image: "quay.io/cilium/cilium:v1.13.0@sha256:6544a3441b086a2e09005d3e21d1a4afb216fae19c5a60b35793c8a9438f8f68"
+        image: "quay.io/cilium/cilium:v1.16.3@sha256:62d2a09bbef840a46099ac4c69421c90f84f28d018d479749049011329aa7f28"
         imagePullPolicy: IfNotPresent
         command:
         - /init-container.sh
@@ -853,6 +1316,12 @@ spec:
               name: cilium-config
               key: clean-cilium-bpf-state
               optional: true
+        - name: WRITE_CNI_CONF_WHEN_READY
+          valueFrom:
+            configMapKeyRef:
+              name: cilium-config
+              key: write-cni-conf-when-ready
+              optional: true
         terminationMessagePolicy: FallbackToLogsOnError
         securityContext:
           seLinuxOptions:
@@ -874,15 +1343,32 @@ spec:
           mountPath: /run/cilium/cgroupv2
           mountPropagation: HostToContainer
         - name: cilium-run
-          mountPath: /var/run/cilium
+          mountPath: /var/run/cilium # wait-for-kube-proxy
+      # Install the CNI binaries in an InitContainer so we don't have a writable host mount in the agent
+      - name: install-cni-binaries
+        image: "quay.io/cilium/cilium:v1.16.3@sha256:62d2a09bbef840a46099ac4c69421c90f84f28d018d479749049011329aa7f28"
+        imagePullPolicy: IfNotPresent
+        command:
+          - "/install-plugin.sh"
         resources:
           requests:
             cpu: 100m
-            memory: 100Mi # wait-for-kube-proxy
+            memory: 10Mi
+        securityContext:
+          seLinuxOptions:
+            level: s0
+            type: spc_t
+          capabilities:
+            drop:
+              - ALL
+        terminationMessagePolicy: FallbackToLogsOnError
+        volumeMounts:
+          - name: cni-path
+            mountPath: /host/opt/cni/bin # .Values.cni.install
       restartPolicy: Always
       priorityClassName: system-node-critical
-      serviceAccount: "cilium"
       serviceAccountName: "cilium"
+      automountServiceAccountToken: true
       terminationGracePeriodSeconds: 1
       hostNetwork: true
       affinity:
@@ -910,7 +1396,7 @@ spec:
         hostPath:
           path: /sys/fs/bpf
           type: DirectoryOrCreate
-      # To mount cgroup2 filesystem on the host
+      # To mount cgroup2 filesystem on the host or apply sysctlfix
       - name: hostproc
         hostPath:
           path: /proc
@@ -939,13 +1425,48 @@ spec:
         hostPath:
           path: /run/xtables.lock
           type: FileOrCreate
+      # Sharing socket with Cilium Envoy on the same node by using a host path
+      - name: envoy-sockets
+        hostPath:
+          path: "/var/run/cilium/envoy/sockets"
+          type: DirectoryOrCreate
         # To read the clustermesh configuration
       - name: clustermesh-secrets
-        secret:
-          secretName: cilium-clustermesh
+        projected:
           # note: the leading zero means this number is in octal representation: do not remove it
           defaultMode: 0400
-          optional: true
+          sources:
+          - secret:
+              name: cilium-clustermesh
+              optional: true
+              # note: items are not explicitly listed here, since the entries of this secret
+              # depend on the peers configured, and that would cause a restart of all agents
+              # at every addition/removal. Leaving the field empty makes each secret entry
+              # to be automatically projected into the volume as a file whose name is the key.
+          - secret:
+              name: clustermesh-apiserver-remote-cert
+              optional: true
+              items:
+              - key: tls.key
+                path: common-etcd-client.key
+              - key: tls.crt
+                path: common-etcd-client.crt
+              - key: ca.crt
+                path: common-etcd-client-ca.crt
+          # note: we configure the volume for the kvstoremesh-specific certificate
+          # regardless of whether KVStoreMesh is enabled or not, so that it can be
+          # automatically mounted in case KVStoreMesh gets subsequently enabled,
+          # without requiring an agent restart.
+          - secret:
+              name: clustermesh-apiserver-local-cert
+              optional: true
+              items:
+              - key: tls.key
+                path: local-etcd-client.key
+              - key: tls.crt
+                path: local-etcd-client.crt
+              - key: ca.crt
+                path: local-etcd-client-ca.crt
       - name: host-proc-sys-net
         hostPath:
           path: /proc/sys/net
@@ -955,6 +1476,174 @@ spec:
           path: /proc/sys/kernel
           type: Directory
 ---
+# Source: cilium/templates/cilium-envoy/daemonset.yaml
+apiVersion: apps/v1
+kind: DaemonSet
+metadata:
+  name: cilium-envoy
+  namespace: kube-system
+  labels:
+    k8s-app: cilium-envoy
+    app.kubernetes.io/part-of: cilium
+    app.kubernetes.io/name: cilium-envoy
+    name: cilium-envoy
+spec:
+  selector:
+    matchLabels:
+      k8s-app: cilium-envoy
+  updateStrategy:
+    rollingUpdate:
+      maxUnavailable: 2
+    type: RollingUpdate
+  template:
+    metadata:
+      annotations:
+      labels:
+        k8s-app: cilium-envoy
+        name: cilium-envoy
+        app.kubernetes.io/name: cilium-envoy
+        app.kubernetes.io/part-of: cilium
+    spec:
+      securityContext:
+        appArmorProfile:
+          type: Unconfined
+      containers:
+      - name: cilium-envoy
+        image: "quay.io/cilium/cilium-envoy:v1.29.9-1728346947-0d05e48bfbb8c4737ec40d5781d970a550ed2bbd@sha256:42614a44e508f70d03a04470df5f61e3cffd22462471a0be0544cf116f2c50ba"
+        imagePullPolicy: IfNotPresent
+        command:
+        - /usr/bin/cilium-envoy-starter
+        args:
+        - '--'
+        - '-c /var/run/cilium/envoy/bootstrap-config.json'
+        - '--base-id 0'
+        - '--log-level info'
+        - '--log-format [%Y-%m-%d %T.%e][%t][%l][%n] [%g:%#] %v'
+        startupProbe:
+          httpGet:
+            host: "127.0.0.1"
+            path: /healthz
+            port: 9878
+            scheme: HTTP
+          failureThreshold: 105
+          periodSeconds: 2
+          successThreshold: 1
+          initialDelaySeconds: 5
+        livenessProbe:
+          httpGet:
+            host: "127.0.0.1"
+            path: /healthz
+            port: 9878
+            scheme: HTTP
+          periodSeconds: 30
+          successThreshold: 1
+          failureThreshold: 10
+          timeoutSeconds: 5
+        readinessProbe:
+          httpGet:
+            host: "127.0.0.1"
+            path: /healthz
+            port: 9878
+            scheme: HTTP
+          periodSeconds: 30
+          successThreshold: 1
+          failureThreshold: 3
+          timeoutSeconds: 5
+        env:
+        - name: K8S_NODE_NAME
+          valueFrom:
+            fieldRef:
+              apiVersion: v1
+              fieldPath: spec.nodeName
+        - name: CILIUM_K8S_NAMESPACE
+          valueFrom:
+            fieldRef:
+              apiVersion: v1
+              fieldPath: metadata.namespace
+        ports:
+        - name: envoy-metrics
+          containerPort: 9964
+          hostPort: 9964
+          protocol: TCP
+        securityContext:
+          seLinuxOptions:
+            level: s0
+            type: spc_t
+          capabilities:
+            add:
+              - NET_ADMIN
+              - SYS_ADMIN
+            drop:
+              - ALL
+        terminationMessagePolicy: FallbackToLogsOnError
+        volumeMounts:
+        - name: envoy-sockets
+          mountPath: /var/run/cilium/envoy/sockets
+          readOnly: false
+        - name: envoy-artifacts
+          mountPath: /var/run/cilium/envoy/artifacts
+          readOnly: true
+        - name: envoy-config
+          mountPath: /var/run/cilium/envoy/
+          readOnly: true
+        - name: bpf-maps
+          mountPath: /sys/fs/bpf
+          mountPropagation: HostToContainer
+      restartPolicy: Always
+      priorityClassName: system-node-critical
+      serviceAccountName: "cilium-envoy"
+      automountServiceAccountToken: true
+      terminationGracePeriodSeconds: 1
+      hostNetwork: true
+      affinity:
+        nodeAffinity:
+          requiredDuringSchedulingIgnoredDuringExecution:
+            nodeSelectorTerms:
+            - matchExpressions:
+              - key: cilium.io/no-schedule
+                operator: NotIn
+                values:
+                - "true"
+        podAffinity:
+          requiredDuringSchedulingIgnoredDuringExecution:
+          - labelSelector:
+              matchLabels:
+                k8s-app: cilium
+            topologyKey: kubernetes.io/hostname
+        podAntiAffinity:
+          requiredDuringSchedulingIgnoredDuringExecution:
+          - labelSelector:
+              matchLabels:
+                k8s-app: cilium-envoy
+            topologyKey: kubernetes.io/hostname
+      nodeSelector:
+        kubernetes.io/os: linux
+      tolerations:
+        - operator: Exists
+      volumes:
+      - name: envoy-sockets
+        hostPath:
+          path: "/var/run/cilium/envoy/sockets"
+          type: DirectoryOrCreate
+      - name: envoy-artifacts
+        hostPath:
+          path: "/var/run/cilium/envoy/artifacts"
+          type: DirectoryOrCreate
+      - name: envoy-config
+        configMap:
+          name: cilium-envoy-config
+          # note: the leading zero means this number is in octal representation: do not remove it
+          defaultMode: 0400
+          items:
+            - key: bootstrap-config.json
+              path: bootstrap-config.json
+        # To keep state between restarts / upgrades
+        # To keep state between restarts / upgrades for bpf maps
+      - name: bpf-maps
+        hostPath:
+          path: /sys/fs/bpf
+          type: DirectoryOrCreate
+---
 # Source: cilium/templates/cilium-operator/deployment.yaml
 apiVersion: apps/v1
 kind: Deployment
@@ -974,14 +1663,20 @@ spec:
     matchLabels:
       io.cilium/app: operator
       name: cilium-operator
+  # ensure operator update on single node k8s clusters, by using rolling update with maxUnavailable=100% in case
+  # of one replica and no user configured Recreate strategy.
+  # otherwise an update might get stuck due to the default maxUnavailable=50% in combination with the
+  # podAntiAffinity which prevents deployments of multiple operator replicas on the same node.
   strategy:
     rollingUpdate:
-      maxSurge: 1
-      maxUnavailable: 1
+      maxSurge: 25%
+      maxUnavailable: 50%
     type: RollingUpdate
   template:
     metadata:
       annotations:
+        prometheus.io/port: "9963"
+        prometheus.io/scrape: "true"
       labels:
         io.cilium/app: operator
         name: cilium-operator
@@ -990,7 +1685,7 @@ spec:
     spec:
       containers:
       - name: cilium-operator
-        image: "quay.io/cilium/operator-generic:v1.13.0@sha256:4b58d5b33e53378355f6e8ceb525ccf938b7b6f5384b35373f1f46787467ebf5"
+        image: "quay.io/cilium/operator-generic:v1.16.3@sha256:6e2925ef47a1c76e183c48f95d4ce0d34a1e5e848252f910476c3e11ce1ec94b"
         imagePullPolicy: IfNotPresent
         command:
         - cilium-operator-generic
@@ -1014,6 +1709,11 @@ spec:
               key: debug
               name: cilium-config
               optional: true
+        ports:
+        - name: prometheus
+          containerPort: 9963
+          hostPort: 9963
+          protocol: TCP
         livenessProbe:
           httpGet:
             host: "127.0.0.1"
@@ -1023,6 +1723,16 @@ spec:
           initialDelaySeconds: 60
           periodSeconds: 10
           timeoutSeconds: 3
+        readinessProbe:
+          httpGet:
+            host: "127.0.0.1"
+            path: /healthz
+            port: 9234
+            scheme: HTTP
+          initialDelaySeconds: 0
+          periodSeconds: 5
+          timeoutSeconds: 3
+          failureThreshold: 5
         volumeMounts:
         - name: cilium-config-path
           mountPath: /tmp/cilium/config-map
@@ -1031,8 +1741,8 @@ spec:
       hostNetwork: true
       restartPolicy: Always
       priorityClassName: system-cluster-critical
-      serviceAccount: "cilium-operator"
       serviceAccountName: "cilium-operator"
+      automountServiceAccountToken: true
       # In HA mode, cilium-operator pods must not be scheduled on the same
       # node as they will clash with each other.
       affinity:
@@ -1051,6 +1761,3 @@ spec:
       - name: cilium-config-path
         configMap:
           name: cilium-config
----
-# Source: cilium/templates/cilium-secrets-namespace.yaml
-# Only create the namespace if it's different from Ingress secret namespace or Ingress is not enabled.
diff --git a/tests/files/custom_cni/values.yaml b/tests/files/custom_cni/values.yaml
index bba8cf744..047a90018 100644
--- a/tests/files/custom_cni/values.yaml
+++ b/tests/files/custom_cni/values.yaml
@@ -8,4 +8,4 @@ hubble:
 ipam:
   operator:
     # Set the appropriate pods subnet
-    clusterPoolIPv4PodCIDR: "{{ kube_pods_subnet }}"
+    clusterPoolIPv4PodCIDRList: ["{{ kube_pods_subnet }}"]
diff --git a/tests/files/packet_debian11-custom-cni.yml b/tests/files/packet_debian11-custom-cni.yml
index 407423e38..9eb717b22 100644
--- a/tests/files/packet_debian11-custom-cni.yml
+++ b/tests/files/packet_debian11-custom-cni.yml
@@ -4,6 +4,7 @@ cloud_image: debian-11
 mode: default
 
 # Kubespray settings
+kube_owner: root
 kube_network_plugin: custom_cni
 custom_cni_manifests:
   - "{{ playbook_dir }}/../tests/files/custom_cni/cilium.yaml"
diff --git a/tests/files/packet_debian12-custom-cni-helm.yml b/tests/files/packet_debian12-custom-cni-helm.yml
index 0ed919828..107c44dd3 100644
--- a/tests/files/packet_debian12-custom-cni-helm.yml
+++ b/tests/files/packet_debian12-custom-cni-helm.yml
@@ -11,7 +11,7 @@ custom_cni_chart_release_name: cilium
 custom_cni_chart_repository_name: cilium
 custom_cni_chart_repository_url: https://helm.cilium.io
 custom_cni_chart_ref: cilium/cilium
-custom_cni_chart_version: 1.14.3
+custom_cni_chart_version: 1.16.3
 custom_cni_chart_values:
   cluster:
     name: kubespray