diff --git a/repos/system_upgrade/common/libraries/overlaygen.py b/repos/system_upgrade/common/libraries/overlaygen.py
index 1bf8c68692..b168f9656f 100644
--- a/repos/system_upgrade/common/libraries/overlaygen.py
+++ b/repos/system_upgrade/common/libraries/overlaygen.py
@@ -141,6 +141,27 @@ def get_recommended_leapp_free_space(userspace_path=None):
     return prot_size
 
 
+def _get_max_diskimage_size_mibs(directory):
+    """
+    Return the maximum sparse file size in MiB supported by the filesystem at `directory`.
+
+    Uses PC_FILESIZEBITS (number of bits in a file offset) to derive the limit.
+    Example: ext4 with 4K blocks reports 44 bits -> max 16 TiB.
+
+    Returns None if the limit cannot be determined, in which case no capping is applied.
+    """
+    try:
+        filesizebits = os.pathconf(directory, 'PC_FILESIZEBITS')
+        return (2 ** filesizebits - 1) // (1024 * 1024)
+    except (AttributeError, ValueError, OSError):
+        api.current_logger().warning(
+            'Cannot determine filesystem file size limit for %s.'
+            ' Disk image sizes will not be capped by filesystem limit.',
+            directory
+        )
+        return None
+
+
 def _get_fspace(path, convert_to_mibs=False, coefficient=1):
     """
     Return the free disk space on given path.
@@ -279,6 +300,7 @@ def _prepare_required_mounts(scratch_dir, mounts_dir, storage_info, scratch_rese
     # as disk images are cleaned in the end of this functions,
     # but we want to reserve some space in advance.
     scratch_disk_size = _get_fspace(scratch_dir, convert_to_mibs=True) - scratch_reserve
+    max_image_size_mibs = _get_max_diskimage_size_mibs(disk_images_directory)
 
     result = {}
     for mountpoint in mount_points:
@@ -286,6 +308,13 @@ def _prepare_required_mounts(scratch_dir, mounts_dir, storage_info, scratch_rese
         disk_size = _get_fspace(mountpoint, convert_to_mibs=True, coefficient=0.95)
         if mountpoint == scratch_mp:
             disk_size = scratch_disk_size
+        if max_image_size_mibs is not None and disk_size > max_image_size_mibs:
+            api.current_logger().warning(
+                'Disk image size for %s (%d MiB) exceeds filesystem file size limit (%d MiB).'
+                ' Capping to filesystem limit.',
+                mountpoint, disk_size, max_image_size_mibs
+            )
+            disk_size = max_image_size_mibs
         image = _create_mount_disk_image(disk_images_directory, mountpoint, disk_size)
         result[mountpoint] = mounting.LoopMount(
             source=image,
diff --git a/repos/system_upgrade/common/libraries/tests/test_overlaygen.py b/repos/system_upgrade/common/libraries/tests/test_overlaygen.py
new file mode 100644
index 0000000000..e40c843ed5
--- /dev/null
+++ b/repos/system_upgrade/common/libraries/tests/test_overlaygen.py
@@ -0,0 +1,163 @@
+import os
+
+from leapp.libraries.common import overlaygen
+from leapp.libraries.common.testutils import CurrentActorMocked
+from leapp.libraries.stdlib import api
+from leapp.models import FstabEntry, StorageInfo
+
+
+def make_storage_info(mountpoints):
+    entries = [
+        FstabEntry(
+            fs_spec='/dev/sda1',
+            fs_file=mp,
+            fs_vfstype='ext4',
+            fs_mntops='defaults',
+            fs_freq='0',
+            fs_passno='0',
+        )
+        for mp in mountpoints
+    ]
+    return StorageInfo(fstab=entries)
+
+
+class TestGetMaxDiskimageSizeMibs(object):
+    def test_returns_correct_value_for_ext4_filesizebits(self, monkeypatch):
+        # ext4 with 4K blocks reports 44 bits -> max 2^44 - 1 bytes -> 16,777,215 MiB
+        monkeypatch.setattr(os, 'pathconf', lambda path, name: 44)
+        result = overlaygen._get_max_diskimage_size_mibs('/some/dir')
+        assert result == (2 ** 44 - 1) // (1024 * 1024)
+        assert result == 16777215
+
+    def test_returns_correct_value_for_xfs_filesizebits(self, monkeypatch):
+        # XFS reports 63 bits -> max 2^63 - 1 bytes
+        monkeypatch.setattr(os, 'pathconf', lambda path, name: 63)
+        result = overlaygen._get_max_diskimage_size_mibs('/some/dir')
+        assert result == (2 ** 63 - 1) // (1024 * 1024)
+
+    def test_returns_none_on_oserror(self, monkeypatch):
+        def raise_oserror(path, name):
+            raise OSError('not supported')
+
+        monkeypatch.setattr(os, 'pathconf', raise_oserror)
+        monkeypatch.setattr(api, 'current_actor', CurrentActorMocked())
+        result = overlaygen._get_max_diskimage_size_mibs('/some/dir')
+        assert result is None
+
+    def test_returns_none_when_pathconf_raises_attribute_error(self, monkeypatch):
+        def raise_attribute_error(path, name):
+            raise AttributeError('not available')
+
+        monkeypatch.setattr(api, 'current_actor', CurrentActorMocked())
+        monkeypatch.setattr(os, 'pathconf', raise_attribute_error)
+        result = overlaygen._get_max_diskimage_size_mibs('/some/dir')
+        assert result is None
+
+
+class TestPrepareRequiredMountsCapsDiskSize(object):
+    """Verify that _prepare_required_mounts caps disk image size to the filesystem limit."""
+
+    def _setup_mocks(self, monkeypatch, tmp_path, free_space_by_path, max_image_size_mibs):
+        """Common mock setup. Returns (scratch_dir, mounts_dir, created_images dict)."""
+        scratch_dir = str(tmp_path / 'scratch')
+        mounts_dir = str(tmp_path / 'mounts')
+        os.makedirs(scratch_dir)
+        os.makedirs(mounts_dir)
+        created_images = {}
+
+        def fake_get_fspace(path, convert_to_mibs=False, coefficient=1):
+            size = free_space_by_path.get(path, 10240)
+            return int(size * coefficient)
+
+        def fake_get_max(directory):
+            return max_image_size_mibs
+
+        def fake_create_diskimages_dir(sd, diskimages_dir):
+            os.makedirs(diskimages_dir, exist_ok=True)
+
+        def fake_ensure_space(space_needed, directory):
+            pass
+
+        def fake_run(cmd):
+            pass
+
+        def fake_create_mount_disk_image(disk_images_directory, path, disk_size):
+            created_images[path] = disk_size
+            image_path = os.path.join(disk_images_directory, 'root' + path.replace('/', '_'))
+            open(image_path, 'w').close()
+            return image_path
+
+        monkeypatch.setattr(overlaygen, '_get_fspace', fake_get_fspace)
+        monkeypatch.setattr(overlaygen, '_get_max_diskimage_size_mibs', fake_get_max)
+        monkeypatch.setattr(overlaygen, '_create_diskimages_dir', fake_create_diskimages_dir)
+        monkeypatch.setattr(overlaygen, '_ensure_enough_diskimage_space', fake_ensure_space)
+        monkeypatch.setattr(overlaygen, '_create_mount_disk_image', fake_create_mount_disk_image)
+        monkeypatch.setattr(overlaygen, 'run', fake_run)
+        monkeypatch.setattr(api, 'current_actor', CurrentActorMocked())
+
+        return scratch_dir, mounts_dir, created_images
+
+    def test_disk_size_capped_when_exceeds_fs_limit(self, monkeypatch, tmp_path):
+        """When /home free space exceeds the FS file size limit, the disk image is capped."""
+        # Simulate CL7 cPanel server: / on ext4 (142 GiB free), /home on large SAN (19 TB free)
+        ext4_limit_mibs = 16777215  # 2^44 - 1 MiB (ext4 with 4K blocks)
+        scratch_dir = str(tmp_path / 'scratch')
+
+        free_space = {
+            '/': 145408,
+            '/home': 19373090,  # ~19 TB - exceeds ext4 limit
+            scratch_dir: 145408,
+        }
+
+        scratch_dir, mounts_dir, created_images = self._setup_mocks(
+            monkeypatch, tmp_path, free_space, ext4_limit_mibs
+        )
+
+        storage_info = make_storage_info(['/', '/home'])
+        overlaygen._prepare_required_mounts(scratch_dir, mounts_dir, storage_info, scratch_reserve=0)
+
+        assert created_images['/home'] == ext4_limit_mibs, (
+            '/home disk image must be capped to ext4 file size limit'
+        )
+        assert created_images['/'] <= ext4_limit_mibs
+
+    def test_disk_size_not_capped_when_within_fs_limit(self, monkeypatch, tmp_path):
+        """When free space is within the FS limit, the disk image size is kept as-is."""
+        ext4_limit_mibs = 16777215
+        scratch_dir = str(tmp_path / 'scratch')
+
+        free_space = {
+            '/': 145408,
+            '/home': 200000,  # 200 GiB - well within ext4 limit
+            scratch_dir: 145408,
+        }
+
+        scratch_dir, mounts_dir, created_images = self._setup_mocks(
+            monkeypatch, tmp_path, free_space, ext4_limit_mibs
+        )
+
+        storage_info = make_storage_info(['/', '/home'])
+        overlaygen._prepare_required_mounts(scratch_dir, mounts_dir, storage_info, scratch_reserve=0)
+
+        # /home is within limit: 95% of 200000 = 190000
+        assert created_images['/home'] == int(200000 * 0.95)
+
+    def test_disk_size_not_capped_when_fs_limit_unknown(self, monkeypatch, tmp_path):
+        """When the FS limit cannot be determined (None), disk sizes are passed through unchanged."""
+        scratch_dir = str(tmp_path / 'scratch')
+        large_size = 19373090  # ~19 TB
+
+        free_space = {
+            '/': large_size,
+            scratch_dir: large_size,
+        }
+
+        scratch_dir, mounts_dir, created_images = self._setup_mocks(
+            monkeypatch, tmp_path, free_space, None  # unknown limit
+        )
+
+        storage_info = make_storage_info(['/'])
+        overlaygen._prepare_required_mounts(scratch_dir, mounts_dir, storage_info, scratch_reserve=0)
+
+        # No cap applied - scratch_disk_size = large_size - 0 = large_size
+        assert created_images['/'] == large_size