diff --git a/test/e2e/compressed_manifests_test.go b/test/e2e/compressed_manifests_test.go
new file mode 100644
index 000000000..66208bbf8
--- /dev/null
+++ b/test/e2e/compressed_manifests_test.go
@@ -0,0 +1,210 @@
+//go:build e2e
+// +build e2e
+
+/*
+Copyright 2023 The Kubernetes Authors.
+
+Licensed under the Apache License, Version 2.0 (the "License");
+you may not use this file except in compliance with the License.
+You may obtain a copy of the License at
+
+    http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing, software
+distributed under the License is distributed on an "AS IS" BASIS,
+WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+See the License for the specific language governing permissions and
+limitations under the License.
+*/
+
+package e2e
+
+import (
+	"fmt"
+
+	. "github.com/onsi/ginkgo/v2"
+	. "github.com/onsi/gomega"
+	appsv1 "k8s.io/api/apps/v1"
+	corev1 "k8s.io/api/core/v1"
+	metav1 "k8s.io/apimachinery/pkg/apis/meta/v1"
+	operatorv1 "sigs.k8s.io/cluster-api-operator/api/v1alpha1"
+	"sigs.k8s.io/controller-runtime/pkg/client"
+)
+
+const (
+	ociInfrastructureProviderName           = "oci"
+	ociInfrastructureProviderVersion        = "v0.12.0"
+	ociInfrastructureProviderDeploymentName = "capoci-controller-manager"
+	compressedAnnotation                    = "provider.cluster.x-k8s.io/compressed"
+	componentsConfigMapKey                  = "components"
+)
+
+var _ = Describe("Create and delete a provider with manifests that don't fit the configmap", func() {
+	It("should successfully create a CoreProvider", func() {
+		k8sclient := bootstrapClusterProxy.GetClient()
+		coreProvider := &operatorv1.CoreProvider{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      coreProviderName,
+				Namespace: operatorNamespace,
+			},
+			Spec: operatorv1.CoreProviderSpec{
+				ProviderSpec: operatorv1.ProviderSpec{},
+			},
+		}
+
+		Expect(k8sclient.Create(ctx, coreProvider)).To(Succeed())
+
+		By("Waiting for the core provider deployment to be ready")
+		Eventually(func() bool {
+			isReady, err := waitForDeployment(k8sclient, ctx, coreProviderDeploymentName)
+			if err != nil {
+				return false
+			}
+			return isReady
+		}, timeout).Should(Equal(true))
+
+		By("Waiting for core provider to be ready")
+		Eventually(func() bool {
+			coreProvider := &operatorv1.CoreProvider{}
+			key := client.ObjectKey{Namespace: operatorNamespace, Name: coreProviderName}
+			if err := k8sclient.Get(ctx, key, coreProvider); err != nil {
+				return false
+			}
+
+			for _, c := range coreProvider.Status.Conditions {
+				if c.Type == operatorv1.ProviderInstalledCondition && c.Status == corev1.ConditionTrue {
+					return true
+				}
+			}
+			return false
+		}, timeout).Should(Equal(true))
+
+		By("Waiting for status.IntalledVersion to be set")
+		Eventually(func() bool {
+			coreProvider := &operatorv1.CoreProvider{}
+			key := client.ObjectKey{Namespace: operatorNamespace, Name: coreProviderName}
+			if err := k8sclient.Get(ctx, key, coreProvider); err != nil {
+				return false
+			}
+
+			if coreProvider.Status.InstalledVersion != nil && *coreProvider.Status.InstalledVersion == coreProvider.Spec.Version {
+				return true
+			}
+			return false
+		}, timeout).Should(Equal(true))
+	})
+
+	It("should successfully create and delete an InfrastructureProvider for OCI", func() {
+		k8sclient := bootstrapClusterProxy.GetClient()
+		infraProvider := &operatorv1.InfrastructureProvider{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      ociInfrastructureProviderName,
+				Namespace: operatorNamespace,
+			},
+			Spec: operatorv1.InfrastructureProviderSpec{
+				ProviderSpec: operatorv1.ProviderSpec{
+					Version: ociInfrastructureProviderVersion,
+				},
+			},
+		}
+
+		Expect(k8sclient.Create(ctx, infraProvider)).To(Succeed())
+
+		By("Waiting for the infrastructure provider to be ready")
+		Eventually(func() bool {
+			infraProvider := &operatorv1.InfrastructureProvider{}
+			key := client.ObjectKey{Namespace: operatorNamespace, Name: ociInfrastructureProviderName}
+			if err := k8sclient.Get(ctx, key, infraProvider); err != nil {
+				return false
+			}
+
+			for _, c := range infraProvider.Status.Conditions {
+				if c.Type == operatorv1.ProviderInstalledCondition && c.Status == corev1.ConditionTrue {
+					return true
+				}
+			}
+			return false
+		}, timeout).Should(Equal(true))
+
+		By("Waiting for status.IntalledVersion to be set")
+		Eventually(func() bool {
+			infraProvider := &operatorv1.InfrastructureProvider{}
+			key := client.ObjectKey{Namespace: operatorNamespace, Name: ociInfrastructureProviderName}
+			if err := k8sclient.Get(ctx, key, infraProvider); err != nil {
+				return false
+			}
+
+			if infraProvider.Status.InstalledVersion != nil && *infraProvider.Status.InstalledVersion == infraProvider.Spec.Version {
+				return true
+			}
+			return false
+		}, timeout).Should(Equal(true))
+
+		By("Ensure that the created config map has correct annotation")
+		cm := &corev1.ConfigMap{}
+		cmName := fmt.Sprintf("infrastructure-%s-%s", ociInfrastructureProviderName, ociInfrastructureProviderVersion)
+		key := client.ObjectKey{Namespace: operatorNamespace, Name: cmName}
+		Expect(k8sclient.Get(ctx, key, cm)).To(Succeed())
+
+		Expect(cm.GetAnnotations()[compressedAnnotation]).To(Equal("true"))
+
+		Expect(cm.BinaryData[componentsConfigMapKey]).ToNot(BeEmpty())
+
+		Expect(k8sclient.Delete(ctx, infraProvider)).To(Succeed())
+
+		By("Waiting for the infrastructure provider deployment to be created")
+		Eventually(func() bool {
+			deployment := &appsv1.Deployment{}
+			key := client.ObjectKey{Namespace: operatorNamespace, Name: ociInfrastructureProviderDeploymentName}
+
+			return k8sclient.Get(ctx, key, deployment) == nil
+		}, timeout).Should(Equal(true))
+
+		By("Waiting for the infrastructure provider deployment to be deleted")
+		Eventually(func() bool {
+			deployment := &appsv1.Deployment{}
+			key := client.ObjectKey{Namespace: operatorNamespace, Name: ociInfrastructureProviderDeploymentName}
+			isInfraProviderDeleted, err := waitForObjectToBeDeleted(k8sclient, ctx, key, deployment)
+			if err != nil {
+				return false
+			}
+			return isInfraProviderDeleted
+		}, timeout).Should(Equal(true))
+	})
+
+	It("should successfully delete a CoreProvider", func() {
+		k8sclient := bootstrapClusterProxy.GetClient()
+		coreProvider := &operatorv1.CoreProvider{
+			ObjectMeta: metav1.ObjectMeta{
+				Name:      coreProviderName,
+				Namespace: operatorNamespace,
+			},
+			Spec: operatorv1.CoreProviderSpec{
+				ProviderSpec: operatorv1.ProviderSpec{},
+			},
+		}
+
+		Expect(k8sclient.Delete(ctx, coreProvider)).To(Succeed())
+
+		By("Waiting for the core provider deployment to be deleted")
+		Eventually(func() bool {
+			deployment := &appsv1.Deployment{}
+			key := client.ObjectKey{Namespace: operatorNamespace, Name: coreProviderDeploymentName}
+			isReady, err := waitForObjectToBeDeleted(k8sclient, ctx, key, deployment)
+			if err != nil {
+				return false
+			}
+			return isReady
+		}, timeout).Should(Equal(true))
+
+		By("Waiting for the core provider object to be deleted")
+		Eventually(func() bool {
+			key := client.ObjectKey{Namespace: operatorNamespace, Name: coreProviderName}
+			isReady, err := waitForObjectToBeDeleted(k8sclient, ctx, key, coreProvider)
+			if err != nil {
+				return false
+			}
+			return isReady
+		}, timeout).Should(Equal(true))
+	})
+})