diff --git a/internal/declarative/v2/reconciler.go b/internal/declarative/v2/reconciler.go
index 0acc79ef1c2..97ea381db0c 100644
--- a/internal/declarative/v2/reconciler.go
+++ b/internal/declarative/v2/reconciler.go
@@ -61,6 +61,7 @@ func NewFromManager(mgr manager.Manager,
 	reconciler.RequeueIntervals = requeueIntervals
 	reconciler.specResolver = specResolver
 	reconciler.manifestClient = manifestClient
+	reconciler.managedLabelRemovalService = labelsremoval.NewManagedLabelRemovalService(manifestClient)
 	reconciler.Options = DefaultOptions().Apply(WithManager(mgr)).Apply(options...)
 	return reconciler
 }
@@ -68,10 +69,11 @@ func NewFromManager(mgr manager.Manager,
 type Reconciler struct {
 	queue.RequeueIntervals
 	*Options
-	ManifestMetrics        *metrics.ManifestMetrics
-	MandatoryModuleMetrics *metrics.MandatoryModulesMetrics
-	specResolver           SpecResolver
-	manifestClient         manifestclient.ManifestClient
+	ManifestMetrics            *metrics.ManifestMetrics
+	MandatoryModuleMetrics     *metrics.MandatoryModulesMetrics
+	specResolver               SpecResolver
+	manifestClient             manifestclient.ManifestClient
+	managedLabelRemovalService *labelsremoval.ManagedLabelRemovalService
 }
 
 const waitingForResourcesMsg = "waiting for resources to become ready"
@@ -250,8 +252,9 @@ func (r *Reconciler) handleLabelsRemovalFinalizer(ctx context.Context, skrClient
 	if err != nil {
 		return ctrl.Result{}, err
 	}
-	if err := labelsremoval.HandleLabelsRemovalFinalizerForUnmanagedModule(ctx, manifest, skrClient,
-		r.manifestClient, defaultCR); err != nil {
+
+	if err := r.managedLabelRemovalService.HandleLabelsRemovalFinalizerForUnmanagedModule(ctx, manifest, skrClient,
+		defaultCR); err != nil {
 		return ctrl.Result{}, err
 	}
 
diff --git a/internal/manifest/labelsremoval/labels_removal.go b/internal/manifest/labelsremoval/labels_removal.go
index 3a49d61337f..42f83ec881a 100644
--- a/internal/manifest/labelsremoval/labels_removal.go
+++ b/internal/manifest/labelsremoval/labels_removal.go
@@ -16,16 +16,25 @@ import (
 
 const LabelRemovalFinalizer = "label-removal-finalizer"
 
-func HandleLabelsRemovalFinalizerForUnmanagedModule(ctx context.Context,
-	manifest *v1beta2.Manifest, skrClient client.Client, manifestClnt manifestclient.ManifestClient,
-	defaultCR *unstructured.Unstructured,
+type ManagedLabelRemovalService struct {
+	manifestClient manifestclient.ManifestClient
+}
+
+func NewManagedLabelRemovalService(manifestClient manifestclient.ManifestClient) *ManagedLabelRemovalService {
+	return &ManagedLabelRemovalService{
+		manifestClient: manifestClient,
+	}
+}
+
+func (l *ManagedLabelRemovalService) HandleLabelsRemovalFinalizerForUnmanagedModule(ctx context.Context,
+	manifest *v1beta2.Manifest, skrClient client.Client, defaultCR *unstructured.Unstructured,
 ) error {
 	if err := HandleLabelsRemovalFromResources(ctx, manifest, skrClient, defaultCR); err != nil {
 		return err
 	}
 
 	controllerutil.RemoveFinalizer(manifest, LabelRemovalFinalizer)
-	return manifestClnt.UpdateManifest(ctx, manifest)
+	return l.manifestClient.UpdateManifest(ctx, manifest)
 }
 
 func HandleLabelsRemovalFromResources(ctx context.Context, manifestCR *v1beta2.Manifest,
@@ -36,19 +45,13 @@ func HandleLabelsRemovalFromResources(ctx context.Context, manifestCR *v1beta2.M
 			Name:      res.Name,
 			Namespace: res.Namespace,
 		}
-		gvk := schema.GroupVersionKind{
-			Group:   res.Group,
-			Version: res.Version,
-			Kind:    res.Kind,
-		}
 
-		obj := &unstructured.Unstructured{}
-		obj.SetGroupVersionKind(gvk)
+		obj := ConstructResource(res)
 		if err := skrClient.Get(ctx, objectKey, obj); err != nil {
 			return fmt.Errorf("failed to get resource, %w", err)
 		}
 
-		if NeedsUpdateAfterLabelRemoval(obj) {
+		if IsManagedLabelRemoved(obj) {
 			if err := skrClient.Update(ctx, obj); err != nil {
 				return fmt.Errorf("failed to update object: %w", err)
 			}
@@ -59,7 +62,7 @@ func HandleLabelsRemovalFromResources(ctx context.Context, manifestCR *v1beta2.M
 		return nil
 	}
 
-	if NeedsUpdateAfterLabelRemoval(defaultCR) {
+	if IsManagedLabelRemoved(defaultCR) {
 		if err := skrClient.Update(ctx, defaultCR); err != nil {
 			return fmt.Errorf("failed to update object: %w", err)
 		}
@@ -68,7 +71,20 @@ func HandleLabelsRemovalFromResources(ctx context.Context, manifestCR *v1beta2.M
 	return nil
 }
 
-func NeedsUpdateAfterLabelRemoval(resource *unstructured.Unstructured) bool {
+func ConstructResource(resource shared.Resource) *unstructured.Unstructured {
+	gvk := schema.GroupVersionKind{
+		Group:   resource.Group,
+		Version: resource.Version,
+		Kind:    resource.Kind,
+	}
+
+	obj := &unstructured.Unstructured{}
+	obj.SetGroupVersionKind(gvk)
+
+	return obj
+}
+
+func IsManagedLabelRemoved(resource *unstructured.Unstructured) bool {
 	labels := resource.GetLabels()
 	_, managedByLabelExists := labels[shared.ManagedBy]
 	if managedByLabelExists {
diff --git a/internal/manifest/labelsremoval/labels_removal_test.go b/internal/manifest/labelsremoval/labels_removal_test.go
index ff4ffe0702e..0b3b73e8fae 100644
--- a/internal/manifest/labelsremoval/labels_removal_test.go
+++ b/internal/manifest/labelsremoval/labels_removal_test.go
@@ -15,13 +15,15 @@ import (
 	"github.com/kyma-project/lifecycle-manager/api/shared"
 	"github.com/kyma-project/lifecycle-manager/api/v1beta2"
 	"github.com/kyma-project/lifecycle-manager/internal/manifest/labelsremoval"
+	"github.com/kyma-project/lifecycle-manager/internal/manifest/manifestclient"
+	"github.com/kyma-project/lifecycle-manager/pkg/testutils/builder"
 )
 
 func Test_needsUpdateAfterLabelRemoval_WhenLabelsAreEmpty(t *testing.T) {
 	emptyLabels := map[string]string{}
 	res := &unstructured.Unstructured{}
 	res.SetLabels(emptyLabels)
-	actual := labelsremoval.NeedsUpdateAfterLabelRemoval(res)
+	actual := labelsremoval.IsManagedLabelRemoved(res)
 
 	require.False(t, actual)
 	require.Equal(t, emptyLabels, res.GetLabels())
@@ -34,7 +36,7 @@ func Test_needsUpdateAfterLabelRemoval_WhenManagedByLabel(t *testing.T) {
 	expectedLabels := map[string]string{}
 	res := &unstructured.Unstructured{}
 	res.SetLabels(labels)
-	actual := labelsremoval.NeedsUpdateAfterLabelRemoval(res)
+	actual := labelsremoval.IsManagedLabelRemoved(res)
 
 	require.True(t, actual)
 	require.Equal(t, expectedLabels, res.GetLabels())
@@ -47,30 +49,29 @@ func Test_handleLabelsRemovalFromResources_WhenManifestResourcesHaveLabels(t *te
 		Kind:    "TestKind",
 	}
 
-	manifest := &v1beta2.Manifest{
-		Status: shared.Status{
-			Synced: []shared.Resource{
-				{
-					Name:      "test-resource-1",
-					Namespace: "test-1",
-					GroupVersionKind: apimetav1.GroupVersionKind{
-						Group:   gvk.Group,
-						Version: gvk.Version,
-						Kind:    gvk.Kind,
-					},
+	status := shared.Status{
+		Synced: []shared.Resource{
+			{
+				Name:      "test-resource-1",
+				Namespace: "test-1",
+				GroupVersionKind: apimetav1.GroupVersionKind{
+					Group:   gvk.Group,
+					Version: gvk.Version,
+					Kind:    gvk.Kind,
 				},
-				{
-					Name:      "test-resource-2",
-					Namespace: "test-2",
-					GroupVersionKind: apimetav1.GroupVersionKind{
-						Group:   gvk.Group,
-						Version: gvk.Version,
-						Kind:    gvk.Kind,
-					},
+			},
+			{
+				Name:      "test-resource-2",
+				Namespace: "test-2",
+				GroupVersionKind: apimetav1.GroupVersionKind{
+					Group:   gvk.Group,
+					Version: gvk.Version,
+					Kind:    gvk.Kind,
 				},
 			},
 		},
 	}
+	manifest := builder.NewManifestBuilder().WithStatus(status).Build()
 
 	objs := []client.Object{
 		&unstructured.Unstructured{
@@ -123,11 +124,7 @@ func Test_handleLabelsRemovalFromResources_WhenManifestResourcesHaveLabels(t *te
 }
 
 func Test_handleLabelsRemovalFromResources_WhenManifestResourcesAreNilAndNoDefaultCR(t *testing.T) {
-	manifest := &v1beta2.Manifest{
-		Status: shared.Status{
-			Synced: []shared.Resource{},
-		},
-	}
+	manifest := builder.NewManifestBuilder().Build()
 
 	scheme := machineryruntime.NewScheme()
 	err := v1beta2.AddToScheme(scheme)
@@ -147,21 +144,20 @@ func Test_handleLabelsRemovalFromResources_WhenManifestResourcesAndDefaultCRHave
 		Kind:    "TestKind",
 	}
 
-	manifest := &v1beta2.Manifest{
-		Status: shared.Status{
-			Synced: []shared.Resource{
-				{
-					Name:      "test-resource-1",
-					Namespace: "test-1",
-					GroupVersionKind: apimetav1.GroupVersionKind{
-						Group:   gvk.Group,
-						Version: gvk.Version,
-						Kind:    gvk.Kind,
-					},
+	status := shared.Status{
+		Synced: []shared.Resource{
+			{
+				Name:      "test-resource-1",
+				Namespace: "test-1",
+				GroupVersionKind: apimetav1.GroupVersionKind{
+					Group:   gvk.Group,
+					Version: gvk.Version,
+					Kind:    gvk.Kind,
 				},
 			},
 		},
 	}
+	manifest := builder.NewManifestBuilder().WithStatus(status).Build()
 
 	objs := []client.Object{
 		&unstructured.Unstructured{
@@ -206,8 +202,118 @@ func Test_handleLabelsRemovalFromResources_WhenManifestResourcesAndDefaultCRHave
 	require.NoError(t, err)
 	require.Empty(t, firstObj.GetLabels())
 
-	err = fakeClient.Get(context.TODO(), client.ObjectKey{Name: "default-cr", Namespace: "default-ns"},
-		defaultCR)
 	require.NoError(t, err)
 	require.Empty(t, defaultCR.GetLabels())
 }
+
+func Test_HandleLabelsRemovalFinalizerForUnmanagedModule_WhenErrorIsReturned(t *testing.T) {
+	scheme := machineryruntime.NewScheme()
+	err := v1beta2.AddToScheme(scheme)
+	require.NoError(t, err)
+
+	gvk := schema.GroupVersionKind{
+		Group:   "test-group",
+		Version: "v1",
+		Kind:    "TestKind",
+	}
+	status := shared.Status{
+		Synced: []shared.Resource{
+			{
+				Name:      "test-resource-1",
+				Namespace: "test-1",
+				GroupVersionKind: apimetav1.GroupVersionKind{
+					Group:   gvk.Group,
+					Version: gvk.Version,
+					Kind:    gvk.Kind,
+				},
+			},
+		},
+	}
+	manifest := builder.NewManifestBuilder().WithStatus(status).Build()
+
+	fakeClient := fake.NewClientBuilder().WithScheme(scheme).Build()
+
+	manifestClnt := manifestclient.NewManifestClient(nil, fakeClient)
+	svc := labelsremoval.NewManagedLabelRemovalService(manifestClnt)
+
+	err = svc.HandleLabelsRemovalFinalizerForUnmanagedModule(context.TODO(), manifest, fakeClient, nil)
+	require.ErrorContains(t, err, "failed to get resource")
+}
+
+func Test_HandleLabelsRemovalFinalizerForUnmanagedModule_WhenFinalizerIsRemoved(t *testing.T) {
+	scheme := machineryruntime.NewScheme()
+	err := v1beta2.AddToScheme(scheme)
+	require.NoError(t, err)
+
+	gvk := schema.GroupVersionKind{
+		Group:   "test-group",
+		Version: "v1",
+		Kind:    "TestKind",
+	}
+	status := shared.Status{
+		Synced: []shared.Resource{
+			{
+				Name:      "test-resource-1",
+				Namespace: "test-1",
+				GroupVersionKind: apimetav1.GroupVersionKind{
+					Group:   gvk.Group,
+					Version: gvk.Version,
+					Kind:    gvk.Kind,
+				},
+			},
+		},
+	}
+	finalizers := []string{"label-removal-finalizer"}
+	manifest := builder.NewManifestBuilder().WithFinalizers(finalizers).WithStatus(status).Build()
+
+	objs := []client.Object{
+		&unstructured.Unstructured{
+			Object: map[string]interface{}{
+				"apiVersion": gvk.GroupVersion().String(),
+				"kind":       gvk.Kind,
+				"version":    gvk.Version,
+			},
+		},
+	}
+	objs[0].SetName("test-resource-1")
+	objs[0].SetNamespace("test-1")
+	objs[0].SetLabels(map[string]string{
+		"operator.kyma-project.io/managed-by": "kyma",
+	})
+
+	fakeClient := fake.NewClientBuilder().WithScheme(scheme).WithObjects(manifest).WithObjects(objs...).Build()
+
+	manifestClnt := manifestclient.NewManifestClient(nil, fakeClient)
+	svc := labelsremoval.NewManagedLabelRemovalService(manifestClnt)
+
+	err = svc.HandleLabelsRemovalFinalizerForUnmanagedModule(context.TODO(), manifest, fakeClient, nil)
+	require.NoError(t, err)
+
+	err = fakeClient.Get(context.TODO(), client.ObjectKey{Name: manifest.GetName(), Namespace: manifest.GetNamespace()},
+		manifest)
+	require.NoError(t, err)
+	require.Empty(t, manifest.GetFinalizers())
+}
+
+func Test_ConstructResource_ReturnsExpected(t *testing.T) {
+	resource := shared.Resource{
+		Name:      "test-resource",
+		Namespace: "test-ns",
+		GroupVersionKind: apimetav1.GroupVersionKind{
+			Group:   "test-group",
+			Version: "v1",
+			Kind:    "TestKind",
+		},
+	}
+
+	actual := labelsremoval.ConstructResource(resource)
+
+	expected := &unstructured.Unstructured{}
+	expected.SetGroupVersionKind(schema.GroupVersionKind{
+		Group:   "test-group",
+		Version: "v1",
+		Kind:    "TestKind",
+	})
+
+	require.Equal(t, expected, actual)
+}
diff --git a/pkg/testutils/builder/manifest.go b/pkg/testutils/builder/manifest.go
index 25ca91f2941..e7a49626898 100644
--- a/pkg/testutils/builder/manifest.go
+++ b/pkg/testutils/builder/manifest.go
@@ -85,6 +85,12 @@ func (mb ManifestBuilder) WithStatus(status shared.Status) ManifestBuilder {
 	return mb
 }
 
+// WithFinalizers sets v1beta2.Manifest.Finalizers.
+func (mb ManifestBuilder) WithFinalizers(finalizers []string) ManifestBuilder {
+	mb.manifest.Finalizers = finalizers
+	return mb
+}
+
 // Build returns the built v1beta2.Manifest.
 func (mb ManifestBuilder) Build() *v1beta2.Manifest {
 	return mb.manifest
diff --git a/unit-test-coverage.yaml b/unit-test-coverage.yaml
index 64b5638fa4e..13890a0e8a4 100644
--- a/unit-test-coverage.yaml
+++ b/unit-test-coverage.yaml
@@ -6,7 +6,7 @@ packages:
   internal/manifest/statecheck: 71
   internal/manifest/filemutex: 100
   internal/manifest: 10
-  internal/manifest/labelsremoval: 75
+  internal/manifest/labelsremoval: 100
   internal/istio: 63.3
   internal/pkg/resources: 91.7
   internal/remote: 6.4