diff --git a/e2e/image_test.go b/e2e/image_test.go
new file mode 100644
index 000000000..16283405a
--- /dev/null
+++ b/e2e/image_test.go
@@ -0,0 +1,33 @@
+package e2e
+
+import (
+	"fmt"
+	"os/exec"
+	"testing"
+
+	"gotest.tools/assert"
+)
+
+func TestImportTinyImage(t *testing.T) {
+	assert.Assert(t, e2eHome != "", "IGNITE_E2E_HOME should be set")
+
+	// NOTE: Along with tiny image, this also tests the image import failure
+	// when there's no /etc directory in the image filesystem.
+
+	testImage := "hello-world:latest"
+	// Remove if the image already exists.
+	rmvImgCmd := exec.Command(
+		igniteBin,
+		"image", "rm", testImage,
+	)
+	// Ignore error if the image doesn't exists.
+	_, _ = rmvImgCmd.CombinedOutput()
+
+	// Import the image.
+	importImgCmd := exec.Command(
+		igniteBin,
+		"image", "import", testImage,
+	)
+	importImgOut, importImgErr := importImgCmd.CombinedOutput()
+	assert.Check(t, importImgErr, fmt.Sprintf("image import: \n%q\n%s", importImgCmd.Args, importImgOut))
+}
diff --git a/pkg/dmlegacy/image_format.go b/pkg/dmlegacy/image_format.go
index 9d8866730..2cb05a59d 100644
--- a/pkg/dmlegacy/image_format.go
+++ b/pkg/dmlegacy/image_format.go
@@ -19,7 +19,10 @@ import (
 	"github.com/weaveworks/ignite/pkg/util"
 )
 
-const blockSize = 4096 // Block size to use for the ext4 filesystems, this is the default
+const (
+	blockSize       = 4096   // Block size to use for the ext4 filesystems, this is the default
+	minimumBaseSize = 500000 // Mimimum size of the base image, ~ half a megabyte.
+)
 
 // CreateImageFilesystem creates an ext4 filesystem in a file, containing the files from the source
 func CreateImageFilesystem(img *api.Image, src source.Source) error {
@@ -34,7 +37,18 @@ func CreateImageFilesystem(img *api.Image, src source.Source) error {
 	// To accommodate space for the tar file contents and the ext4 journal + other metadata,
 	// make the base image a sparse file three times the size of the source contents. This
 	// will be shrunk to fit by resizeToMinimum later.
-	if err := imageFile.Truncate(int64(img.Status.OCISource.Size.Bytes()) * 3); err != nil {
+	var baseImageSize int64
+	threeTimesImageSize := img.Status.OCISource.Size.Bytes() * 3
+	// If the base image is too small, filesystem creation using mkfs fails with
+	// not enough space error. Ensure the base image size is at least the
+	// minimum base size.
+	if threeTimesImageSize < minimumBaseSize {
+		baseImageSize = int64(minimumBaseSize)
+	} else {
+		baseImageSize = int64(threeTimesImageSize)
+	}
+
+	if err := imageFile.Truncate(baseImageSize); err != nil {
 		return errors.Wrapf(err, "failed to allocate space for image %s", img.GetUID())
 	}
 
@@ -106,6 +120,12 @@ func setupResolvConf(tempDir string) error {
 		return nil
 	}
 
+	// Ensure /etc directory exists. Some images don't contain /etc directory
+	// which results in symlink creation failure.
+	if err := os.MkdirAll(filepath.Dir(resolvConf), constants.DATA_DIR_PERM); err != nil {
+		return err
+	}
+
 	return os.Symlink("../proc/net/pnp", resolvConf)
 }