diff --git a/test/e2e/clusterctl_upgrade.go b/test/e2e/clusterctl_upgrade.go
index 868e779c552a..c76578e74ad0 100644
--- a/test/e2e/clusterctl_upgrade.go
+++ b/test/e2e/clusterctl_upgrade.go
@@ -201,6 +201,9 @@ func ClusterctlUpgradeSpec(ctx context.Context, inputGetter func() ClusterctlUpg
 		err := os.Chmod(clusterctlBinaryPath, 0744) //nolint:gosec
 		Expect(err).ToNot(HaveOccurred(), "failed to chmod temporary file")
 
+		// Adjusts the clusterctlConfigPath in case the clusterctl version <= v1.3 (thus using a config file with only the providers supported in those versions)
+		clusterctlConfigPath := clusterctl.AdjustConfigPathForBinary(clusterctlBinaryPath, input.ClusterctlConfigPath)
+
 		By("Initializing the workload cluster with older versions of providers")
 
 		// NOTE: by default we are considering all the providers, no matter of the contract.
@@ -222,7 +225,7 @@ func ClusterctlUpgradeSpec(ctx context.Context, inputGetter func() ClusterctlUpg
 		clusterctl.InitManagementClusterAndWatchControllerLogs(ctx, clusterctl.InitManagementClusterAndWatchControllerLogsInput{
 			ClusterctlBinaryPath:      clusterctlBinaryPath, // use older version of clusterctl to init the management cluster
 			ClusterProxy:              managementClusterProxy,
-			ClusterctlConfigPath:      input.ClusterctlConfigPath,
+			ClusterctlConfigPath:      clusterctlConfigPath,
 			CoreProvider:              input.E2EConfig.GetProviderLatestVersionsByContract(contract, config.ClusterAPIProviderName)[0],
 			BootstrapProviders:        input.E2EConfig.GetProviderLatestVersionsByContract(contract, config.KubeadmBootstrapProviderName),
 			ControlPlaneProviders:     input.E2EConfig.GetProviderLatestVersionsByContract(contract, config.KubeadmControlPlaneProviderName),
@@ -261,7 +264,7 @@ func ClusterctlUpgradeSpec(ctx context.Context, inputGetter func() ClusterctlUpg
 			// pass reference to the management cluster hosting this test
 			KubeconfigPath: managementClusterProxy.GetKubeconfigPath(),
 			// pass the clusterctl config file that points to the local provider repository created for this test,
-			ClusterctlConfigPath: input.ClusterctlConfigPath,
+			ClusterctlConfigPath: clusterctlConfigPath,
 			// select template
 			Flavor: input.WorkloadFlavor,
 			// define template variables
diff --git a/test/framework/clusterctl/client.go b/test/framework/clusterctl/client.go
index 0d7da962ca1d..18367405b637 100644
--- a/test/framework/clusterctl/client.go
+++ b/test/framework/clusterctl/client.go
@@ -107,7 +107,7 @@ func InitWithBinary(_ context.Context, binary string, input InitInput) {
 		input.KubeconfigPath,
 	)
 
-	args := []string{binary, "init", "--config", input.ClusterctlConfigPath, "--kubeconfig", input.KubeconfigPath}
+	args := []string{"init", "--config", input.ClusterctlConfigPath, "--kubeconfig", input.KubeconfigPath}
 	if input.CoreProvider != "" {
 		args = append(args, "--core", input.CoreProvider)
 	}
diff --git a/test/framework/clusterctl/repository.go b/test/framework/clusterctl/repository.go
index 7b46d8ae192b..9e52592c189b 100644
--- a/test/framework/clusterctl/repository.go
+++ b/test/framework/clusterctl/repository.go
@@ -28,6 +28,7 @@ import (
 	"regexp"
 	"strings"
 
+	"github.com/blang/semver"
 	. "github.com/onsi/gomega"
 	"github.com/pkg/errors"
 
@@ -74,6 +75,9 @@ func (i *CreateRepositoryInput) RegisterClusterResourceSetConfigMapTransformatio
 	})
 }
 
+const clusterctlConfigFileName = "clusterctl-config.yaml"
+const clusterctlConfigV1_2FileName = "clusterctl-config.v1.2.yaml"
+
 // CreateRepository creates a clusterctl local repository based on the e2e test config, and the returns the path
 // to a clusterctl config file to be used for working with such repository.
 func CreateRepository(ctx context.Context, input CreateRepositoryInput) string {
@@ -81,6 +85,7 @@ func CreateRepository(ctx context.Context, input CreateRepositoryInput) string {
 	Expect(os.MkdirAll(input.RepositoryFolder, 0750)).To(Succeed(), "Failed to create the clusterctl local repository folder %s", input.RepositoryFolder)
 
 	providers := []providerConfig{}
+	providersV1_2 := []providerConfig{}
 	for _, provider := range input.E2EConfig.Providers {
 		providerLabel := clusterctlv1.ManifestLabel(provider.Name, clusterctlv1.ProviderType(provider.Type))
 		providerURL := filepath.Join(input.RepositoryFolder, providerLabel, "latest", "components.yaml")
@@ -110,11 +115,15 @@ func CreateRepository(ctx context.Context, input CreateRepositoryInput) string {
 				Expect(os.WriteFile(destinationFile, data, 0600)).To(Succeed(), "Failed to write clusterctl local repository file %q / %q", provider.Name, file.TargetName)
 			}
 		}
-		providers = append(providers, providerConfig{
+		p := providerConfig{
 			Name: provider.Name,
 			URL:  providerURL,
 			Type: provider.Type,
-		})
+		}
+		providers = append(providers, p)
+		if !(clusterctlv1.ProviderType(provider.Type) == clusterctlv1.IPAMProviderType || clusterctlv1.ProviderType(provider.Type) == clusterctlv1.RuntimeExtensionProviderType) {
+			providersV1_2 = append(providersV1_2, p)
+		}
 	}
 
 	// set this path to an empty file under the repository path, so test can run in isolation without user's overrides kicking in
@@ -123,7 +132,7 @@ func CreateRepository(ctx context.Context, input CreateRepositoryInput) string {
 
 	// creates a clusterctl config file to be used for working with such repository
 	clusterctlConfigFile := &clusterctlConfig{
-		Path: filepath.Join(input.RepositoryFolder, "clusterctl-config.yaml"),
+		Path: filepath.Join(input.RepositoryFolder, clusterctlConfigFileName),
 		Values: map[string]interface{}{
 			"providers":       providers,
 			"overridesFolder": overridePath,
@@ -134,9 +143,44 @@ func CreateRepository(ctx context.Context, input CreateRepositoryInput) string {
 	}
 	clusterctlConfigFile.write()
 
+	// creates a clusterctl config file to be used for working with such repository with only the providers supported in clusterctl < v1.3
+	clusterctlConfigFileV1_2 := &clusterctlConfig{
+		Path: filepath.Join(input.RepositoryFolder, clusterctlConfigV1_2FileName),
+		Values: map[string]interface{}{
+			"providers":       providersV1_2,
+			"overridesFolder": overridePath,
+		},
+	}
+	for key := range input.E2EConfig.Variables {
+		clusterctlConfigFileV1_2.Values[key] = input.E2EConfig.GetVariable(key)
+	}
+	clusterctlConfigFileV1_2.write()
+
 	return clusterctlConfigFile.Path
 }
 
+// AdjustConfigPathForBinary adjusts the clusterctlConfigPath in case the clusterctl version v1.3.
+func AdjustConfigPathForBinary(clusterctPath, clusterctlConfigPath string) string {
+	clusterctl := exec.NewCommand(
+		exec.WithCommand(clusterctPath),
+		exec.WithArgs("version", "--output", "short"),
+	)
+	stdout, stderr, err := clusterctl.Run(context.Background())
+	if err != nil {
+		Expect(err).ToNot(HaveOccurred(), "failed to run clusterctl version:\nstdout:\n%s\nstderr:\n%s", string(stdout), stderr)
+	}
+	data := stdout
+	version, err := semver.ParseTolerant(string(data))
+	if err != nil {
+		Expect(err).ToNot(HaveOccurred(), "clusterctl version returned an invalid version: %s (%v)", string(data), err)
+	}
+
+	if version.LT(semver.MustParse("1.3.0")) {
+		return strings.Replace(clusterctlConfigPath, clusterctlConfigFileName, clusterctlConfigV1_2FileName, -1)
+	}
+	return clusterctlConfigPath
+}
+
 // YAMLForComponentSource returns the YAML for the provided component source.
 func YAMLForComponentSource(ctx context.Context, source ProviderVersionSource) ([]byte, error) {
 	var data []byte