diff --git a/cmd/server/main.go b/cmd/server/main.go
index 14307730..4bdf5292 100644
--- a/cmd/server/main.go
+++ b/cmd/server/main.go
@@ -16,6 +16,7 @@ import (
 	"syscall"
 	"time"
 
+	"github.com/Azure/kubernetes-kms/pkg/config"
 	"github.com/Azure/kubernetes-kms/pkg/metrics"
 	"github.com/Azure/kubernetes-kms/pkg/plugin"
 	"github.com/Azure/kubernetes-kms/pkg/utils"
@@ -92,6 +93,27 @@ func main() {
 		ConfigFilePath: *configFilePath,
 	}
 
+	azureConfig, err := config.GetAzureConfig(pluginConfig.ConfigFilePath)
+	if err != nil {
+		klog.ErrorS(err, "failed to get azure config")
+		os.Exit(1)
+	}
+
+	kvClient, err := plugin.NewKeyVaultClient(
+		azureConfig,
+		pluginConfig.KeyVaultName,
+		pluginConfig.KeyName,
+		pluginConfig.KeyVersion,
+		pluginConfig.ProxyMode,
+		pluginConfig.ProxyAddress,
+		pluginConfig.ProxyPort,
+		pluginConfig.ManagedHSM,
+	)
+	if err != nil {
+		klog.ErrorS(err, "failed to create key vault client")
+		os.Exit(1)
+	}
+
 	// Initialize and run the GRPC server
 	proto, addr, err := utils.ParseEndpoint(*listenAddr)
 	if err != nil {
@@ -116,7 +138,7 @@ func main() {
 	s := grpc.NewServer(opts...)
 
 	// register kms v1 server
-	kmsV1Server, err := plugin.NewKMSv1Server(pluginConfig)
+	kmsV1Server, err := plugin.NewKMSv1Server(kvClient)
 	if err != nil {
 		klog.ErrorS(err, "failed to create server")
 		os.Exit(1)
@@ -124,7 +146,7 @@ func main() {
 	kmsv1.RegisterKeyManagementServiceServer(s, kmsV1Server)
 
 	// register kms v2 server
-	kmsV2Server, err := plugin.NewKMSv2Server(pluginConfig)
+	kmsV2Server, err := plugin.NewKMSv2Server(kvClient)
 	if err != nil {
 		klog.ErrorS(err, "failed to create kms V2 server")
 		os.Exit(1)
diff --git a/go.mod b/go.mod
index 307907ef..a0a82242 100644
--- a/go.mod
+++ b/go.mod
@@ -14,7 +14,6 @@ require (
 	google.golang.org/grpc v1.54.0
 	gopkg.in/yaml.v3 v3.0.1
 	k8s.io/apimachinery v0.27.1
-	k8s.io/apiserver v0.25.8
 	k8s.io/component-base v0.25.8
 	k8s.io/klog/v2 v2.90.1
 	k8s.io/kms v0.27.1
diff --git a/go.sum b/go.sum
index 13932ecd..be54f043 100644
--- a/go.sum
+++ b/go.sum
@@ -800,8 +800,6 @@ honnef.co/go/tools v0.0.1-2020.1.3/go.mod h1:X/FiERA/W4tHapMX5mGpAtMSVEeEUOyHaw9
 honnef.co/go/tools v0.0.1-2020.1.4/go.mod h1:X/FiERA/W4tHapMX5mGpAtMSVEeEUOyHaw9vFzvIQ3k=
 k8s.io/apimachinery v0.27.1 h1:EGuZiLI95UQQcClhanryclaQE6xjg1Bts6/L3cD7zyc=
 k8s.io/apimachinery v0.27.1/go.mod h1:5ikh59fK3AJ287GUvpUsryoMFtH9zj/ARfWCo3AyXTM=
-k8s.io/apiserver v0.25.8 h1:ZTYdLdouAu8D6h9QavMaQZiAV+EfWK87VGdOyb6RZMQ=
-k8s.io/apiserver v0.25.8/go.mod h1:IJ1r0vqXxwa+3QbrxAHWqdmoGZnVDDMzWtIK9ju3maI=
 k8s.io/component-base v0.25.8 h1:lQ5Ouw7lupdpXn5slRjAeHnlMK/aAEbPf9jjSWbOD3c=
 k8s.io/component-base v0.25.8/go.mod h1:MkC9Lz4fXoGOgB2WhFBU4zjiviIEeJS3sVhTxX9vt6s=
 k8s.io/klog/v2 v2.90.1 h1:m4bYOKall2MmOiRaR1J+We67Do7vm9KiQVlT96lnHUw=
diff --git a/pkg/plugin/healthz.go b/pkg/plugin/healthz.go
index 061b9cb6..c81f4fe3 100644
--- a/pkg/plugin/healthz.go
+++ b/pkg/plugin/healthz.go
@@ -99,8 +99,9 @@ func (h *HealthZ) ServeHTTP(w http.ResponseWriter, _ *http.Request) {
 		return
 	}
 
-	// v2 checks
-	uid := string(uuid.NewUUID())
+	// v2 checks.
+	// appending a string to UUID allows us to differentiate the UUIDs generated by us from those generated by the API server.
+	uid := "local-healthz-check-" + string(uuid.NewUUID())
 
 	v2EncryptResponse, err := h.KMSv2Server.Encrypt(
 		ctx,
diff --git a/pkg/plugin/keyvault.go b/pkg/plugin/keyvault.go
index f816cc68..fb703fd9 100644
--- a/pkg/plugin/keyvault.go
+++ b/pkg/plugin/keyvault.go
@@ -36,7 +36,6 @@ const (
 	keyvaultRegionAnnotationKey   = "x-ms-keyvault-region.azure.akv.io"
 	versionAnnotationKey          = "version.azure.akv.io"
 	algorithmAnnotationKey        = "algorithm.azure.akv.io"
-	keyIDAnnotationKey            = "key-id.azure.akv.io"
 	dateAnnotationValue           = "Date"
 	requestIDAnnotationValue      = "X-Ms-Request-Id"
 	keyvaultRegionAnnotationValue = "X-Ms-Keyvault-Region"
@@ -46,10 +45,11 @@ const (
 type Client interface {
 	Encrypt(ctx context.Context, cipher []byte) (*service.EncryptResponse, error)
 	Decrypt(ctx context.Context, plain []byte) ([]byte, error)
-	ValidateAnnotations(annotations map[string][]byte) error
+	ValidateAnnotations(annotations map[string][]byte, keyID string) error
 }
 
-type keyVaultClient struct {
+// KeyVaultClient is a client for interacting with Keyvault.
+type KeyVaultClient struct {
 	baseClient       kv.BaseClient
 	config           *config.AzureConfig
 	vaultName        string
@@ -62,14 +62,14 @@ type keyVaultClient struct {
 }
 
 // NewKeyVaultClient returns a new key vault client to use for kms operations.
-func newKeyVaultClient(
+func NewKeyVaultClient(
 	config *config.AzureConfig,
 	vaultName, keyName, keyVersion string,
 	proxyMode bool,
 	proxyAddress string,
 	proxyPort int,
 	managedHSM bool,
-) (*keyVaultClient, error) {
+) (*KeyVaultClient, error) {
 	// Sanitize vaultName, keyName, keyVersion. (https://github.com/Azure/kubernetes-kms/issues/85)
 	vaultName = utils.SanitizeString(vaultName)
 	keyName = utils.SanitizeString(keyName)
@@ -115,7 +115,7 @@ func newKeyVaultClient(
 
 	klog.InfoS("using kms key for encrypt/decrypt", "vaultURL", *vaultURL, "keyName", keyName, "keyVersion", keyVersion)
 
-	client := &keyVaultClient{
+	client := &KeyVaultClient{
 		baseClient:       kvClient,
 		config:           config,
 		vaultName:        vaultName,
@@ -123,14 +123,15 @@ func newKeyVaultClient(
 		keyVersion:       keyVersion,
 		vaultURL:         *vaultURL,
 		azureEnvironment: env,
-		keyID:            fmt.Sprintf("%x", sha256.Sum256([]byte(fmt.Sprintf("%s/keys/%s/%s", *vaultURL, keyName, keyVersion)))),
+		keyID:            fmt.Sprintf("%x", sha256.Sum256([]byte(fmt.Sprintf("%skeys/%s/%s", *vaultURL, keyName, keyVersion)))),
 		algorithm:        kv.RSA15,
 	}
 	return client, nil
 }
 
-func (kvc *keyVaultClient) Encrypt(ctx context.Context, cipher []byte) (*service.EncryptResponse, error) {
-	value := base64.RawURLEncoding.EncodeToString(cipher)
+// Encrypt encrypts the given plain text using the keyvault key.
+func (kvc *KeyVaultClient) Encrypt(ctx context.Context, plain []byte) (*service.EncryptResponse, error) {
+	value := base64.RawURLEncoding.EncodeToString(plain)
 
 	params := kv.KeyOperationsParameters{
 		Algorithm: kvc.algorithm,
@@ -147,7 +148,6 @@ func (kvc *keyVaultClient) Encrypt(ctx context.Context, cipher []byte) (*service
 		keyvaultRegionAnnotationKey: []byte(result.Header.Get(keyvaultRegionAnnotationValue)),
 		versionAnnotationKey:        []byte(encryptionResponseVersion),
 		algorithmAnnotationKey:      []byte(kvc.algorithm),
-		keyIDAnnotationKey:          []byte(kvc.keyID),
 	}
 
 	return &service.EncryptResponse{
@@ -157,8 +157,9 @@ func (kvc *keyVaultClient) Encrypt(ctx context.Context, cipher []byte) (*service
 	}, nil
 }
 
-func (kvc *keyVaultClient) Decrypt(ctx context.Context, plain []byte) ([]byte, error) {
-	value := string(plain)
+// Decrypt decrypts the given cipher text using the keyvault key.
+func (kvc *KeyVaultClient) Decrypt(ctx context.Context, cipher []byte) ([]byte, error) {
+	value := string(cipher)
 
 	params := kv.KeyOperationsParameters{
 		Algorithm: kvc.algorithm,
@@ -177,15 +178,14 @@ func (kvc *keyVaultClient) Decrypt(ctx context.Context, plain []byte) ([]byte, e
 }
 
 // ValidateAnnotations validates following annotations before decryption:
-// - Key ID.
 // - Algorithm.
 // - Version.
-func (kvc *keyVaultClient) ValidateAnnotations(annotations map[string][]byte) error {
+// It also validates keyID that the API server checks.
+func (kvc *KeyVaultClient) ValidateAnnotations(annotations map[string][]byte, keyID string) error {
 	if len(annotations) == 0 {
 		return fmt.Errorf("invalid annotations, annotations cannot be empty")
 	}
 
-	keyID := string(annotations[keyIDAnnotationKey])
 	if keyID != kvc.keyID {
 		return fmt.Errorf(
 			"key id %s does not match expected key id %s used for encryption",
diff --git a/pkg/plugin/keyvault_test.go b/pkg/plugin/keyvault_test.go
index cedb5210..a4896074 100644
--- a/pkg/plugin/keyvault_test.go
+++ b/pkg/plugin/keyvault_test.go
@@ -68,7 +68,7 @@ func TestNewKeyVaultClientError(t *testing.T) {
 
 	for _, test := range tests {
 		t.Run(test.desc, func(t *testing.T) {
-			if _, err := newKeyVaultClient(test.config, test.vaultName, test.keyName, test.keyVersion, test.proxyMode, test.proxyAddress, test.proxyPort, test.managedHSM); err == nil {
+			if _, err := NewKeyVaultClient(test.config, test.vaultName, test.keyName, test.keyVersion, test.proxyMode, test.proxyAddress, test.proxyPort, test.managedHSM); err == nil {
 				t.Fatalf("newKeyVaultClient() expected error, got nil")
 			}
 		})
@@ -131,7 +131,7 @@ func TestNewKeyVaultClient(t *testing.T) {
 
 	for _, test := range tests {
 		t.Run(test.desc, func(t *testing.T) {
-			kvClient, err := newKeyVaultClient(test.config, test.vaultName, test.keyName, test.keyVersion, test.proxyMode, test.proxyAddress, test.proxyPort, test.managedHSM)
+			kvClient, err := NewKeyVaultClient(test.config, test.vaultName, test.keyName, test.keyVersion, test.proxyMode, test.proxyAddress, test.proxyPort, test.managedHSM)
 			if err != nil {
 				t.Fatalf("newKeyVaultClient() failed with error: %v", err)
 			}
diff --git a/pkg/plugin/kms_v2_server.go b/pkg/plugin/kms_v2_server.go
index 927ed78f..96e99ae7 100644
--- a/pkg/plugin/kms_v2_server.go
+++ b/pkg/plugin/kms_v2_server.go
@@ -10,7 +10,6 @@ import (
 	"fmt"
 	"time"
 
-	"github.com/Azure/kubernetes-kms/pkg/config"
 	"github.com/Azure/kubernetes-kms/pkg/metrics"
 	"github.com/Azure/kubernetes-kms/pkg/version"
 
@@ -25,26 +24,7 @@ type KeyManagementServiceV2Server struct {
 }
 
 // NewKMSv2Server creates an instance of the KMS Service Server with v2 apis.
-func NewKMSv2Server(pluginConfig *Config) (*KeyManagementServiceV2Server, error) {
-	cfg, err := config.GetAzureConfig(pluginConfig.ConfigFilePath)
-	if err != nil {
-		return nil, err
-	}
-
-	kvClient, err := newKeyVaultClient(
-		cfg,
-		pluginConfig.KeyVaultName,
-		pluginConfig.KeyName,
-		pluginConfig.KeyVersion,
-		pluginConfig.ProxyMode,
-		pluginConfig.ProxyAddress,
-		pluginConfig.ProxyPort,
-		pluginConfig.ManagedHSM,
-	)
-	if err != nil {
-		return nil, err
-	}
-
+func NewKMSv2Server(kvClient *KeyVaultClient) (*KeyManagementServiceV2Server, error) {
 	return &KeyManagementServiceV2Server{
 		kvClient: kvClient,
 		reporter: metrics.NewStatsReporter(),
@@ -135,7 +115,7 @@ func (s *KeyManagementServiceV2Server) Decrypt(ctx context.Context, request *kms
 	}()
 
 	klog.V(2).InfoS("decrypt request started", "uid", request.Uid)
-	err = s.kvClient.ValidateAnnotations(request.Annotations)
+	err = s.kvClient.ValidateAnnotations(request.Annotations, request.KeyId)
 	if err != nil {
 		klog.ErrorS(err, "failed to decrypt", "uid", request.Uid)
 		return &kmsv2.DecryptResponse{}, err
diff --git a/pkg/plugin/kms_v2_server_test.go b/pkg/plugin/kms_v2_server_test.go
index bd23ee10..d6393f3c 100644
--- a/pkg/plugin/kms_v2_server_test.go
+++ b/pkg/plugin/kms_v2_server_test.go
@@ -92,7 +92,6 @@ func TestV2Decrypt(t *testing.T) {
 			output: []byte{},
 			err:    fmt.Errorf("key id \"invalid-key-id\" does not match expected key id \"mock-key-id\" used for encryption"),
 			annotations: map[string][]byte{
-				keyIDAnnotationKey:     []byte("invalid-key-id"),
 				algorithmAnnotationKey: []byte(keyvault.RSA15),
 				versionAnnotationKey:   []byte("1"),
 			},
@@ -103,7 +102,6 @@ func TestV2Decrypt(t *testing.T) {
 			output: []byte{},
 			err:    fmt.Errorf("algorithm \"insecure-algorithm\" does not match expected algorithm \"RSA1_5\" used for encryption"),
 			annotations: map[string][]byte{
-				keyIDAnnotationKey:     []byte("mock-key-id"),
 				algorithmAnnotationKey: []byte("insecure-algorithm"),
 				versionAnnotationKey:   []byte("1"),
 			},
@@ -114,7 +112,6 @@ func TestV2Decrypt(t *testing.T) {
 			output: []byte{},
 			err:    fmt.Errorf("version \"10\" does not match expected version \"1\" used for encryption"),
 			annotations: map[string][]byte{
-				keyIDAnnotationKey:     []byte("mock-key-id"),
 				algorithmAnnotationKey: []byte(keyvault.RSA15),
 				versionAnnotationKey:   []byte("10"),
 			},
@@ -125,7 +122,6 @@ func TestV2Decrypt(t *testing.T) {
 			output: []byte{},
 			err:    fmt.Errorf("failed to decrypt"),
 			annotations: map[string][]byte{
-				keyIDAnnotationKey:     []byte("mock-key-id"),
 				algorithmAnnotationKey: []byte(keyvault.RSA15),
 				versionAnnotationKey:   []byte("1"),
 			},
@@ -136,7 +132,6 @@ func TestV2Decrypt(t *testing.T) {
 			output: []byte("foo"),
 			err:    nil,
 			annotations: map[string][]byte{
-				keyIDAnnotationKey:     []byte("mock-key-id"),
 				algorithmAnnotationKey: []byte(keyvault.RSA15),
 				versionAnnotationKey:   []byte("1"),
 			},
@@ -159,6 +154,7 @@ func TestV2Decrypt(t *testing.T) {
 			out, err := kmsV2Server.Decrypt(context.TODO(), &kmsv2.DecryptRequest{
 				Ciphertext:  test.input,
 				Annotations: test.annotations,
+				KeyId:       "mock-key-id",
 			})
 			if err != nil && (err.Error() != test.err.Error()) {
 				t.Fatalf("expected err: %v, got: %v", test.err, err)
diff --git a/pkg/plugin/mock_keyvault/keyvault_mock.go b/pkg/plugin/mock_keyvault/keyvault_mock.go
index e8d35631..d1080def 100644
--- a/pkg/plugin/mock_keyvault/keyvault_mock.go
+++ b/pkg/plugin/mock_keyvault/keyvault_mock.go
@@ -59,13 +59,13 @@ func (kvc *KeyVaultClient) SetDecryptResponse(decryptOut []byte, err error) {
 	kvc.decryptErr = err
 }
 
-func (kvc *KeyVaultClient) ValidateAnnotations(annotations map[string][]byte) error {
+func (kvc *KeyVaultClient) ValidateAnnotations(annotations map[string][]byte, keyID string) error {
 	if len(annotations) == 0 {
 		return fmt.Errorf("invalid annotations, annotations cannot be empty")
 	}
 
 	// validate key id
-	if string(annotations["key-id.azure.akv.io"]) != kvc.KeyID {
+	if keyID != kvc.KeyID {
 		return fmt.Errorf(
 			"key id %q does not match expected key id %q used for encryption",
 			string(annotations["key-id.azure.akv.io"]),
diff --git a/pkg/plugin/server.go b/pkg/plugin/server.go
index c72b254e..cff93737 100644
--- a/pkg/plugin/server.go
+++ b/pkg/plugin/server.go
@@ -9,7 +9,6 @@ import (
 	"context"
 	"time"
 
-	"github.com/Azure/kubernetes-kms/pkg/config"
 	"github.com/Azure/kubernetes-kms/pkg/metrics"
 	"github.com/Azure/kubernetes-kms/pkg/version"
 
@@ -36,15 +35,7 @@ type Config struct {
 }
 
 // NewKMSv1Server creates an instance of the KMS Service Server.
-func NewKMSv1Server(pc *Config) (*KeyManagementServiceServer, error) {
-	cfg, err := config.GetAzureConfig(pc.ConfigFilePath)
-	if err != nil {
-		return nil, err
-	}
-	kvClient, err := newKeyVaultClient(cfg, pc.KeyVaultName, pc.KeyName, pc.KeyVersion, pc.ProxyMode, pc.ProxyAddress, pc.ProxyPort, pc.ManagedHSM)
-	if err != nil {
-		return nil, err
-	}
+func NewKMSv1Server(kvClient *KeyVaultClient) (*KeyManagementServiceServer, error) {
 	return &KeyManagementServiceServer{
 		kvClient: kvClient,
 		reporter: metrics.NewStatsReporter(),
diff --git a/tests/client/client_test.go b/tests/client/client_test.go
index fb28fb3b..90ebc8cc 100644
--- a/tests/client/client_test.go
+++ b/tests/client/client_test.go
@@ -9,7 +9,7 @@ import (
 	"golang.org/x/net/context"
 	"google.golang.org/grpc"
 	"google.golang.org/grpc/credentials/insecure"
-	k8spb "k8s.io/apiserver/pkg/storage/value/encrypt/envelope/v1beta1"
+	kmsv1 "k8s.io/kms/apis/v1beta1"
 )
 
 const (
@@ -19,7 +19,7 @@ const (
 )
 
 var (
-	client     k8spb.KeyManagementServiceClient
+	client     kmsv1.KeyManagementServiceClient
 	connection *grpc.ClientConn
 	err        error
 )
@@ -30,7 +30,7 @@ func setupTestCase(t *testing.T) func(t *testing.T) {
 	if err != nil {
 		fmt.Printf("%s", err)
 	}
-	client = k8spb.NewKeyManagementServiceClient(connection)
+	client = kmsv1.NewKeyManagementServiceClient(connection)
 	return func(t *testing.T) {
 		t.Log("teardown test case")
 		connection.Close()
@@ -54,13 +54,13 @@ func TestEncryptDecrypt(t *testing.T) {
 
 	for _, tc := range cases {
 		t.Run(tc.name, func(t *testing.T) {
-			encryptRequest := k8spb.EncryptRequest{Version: version, Plain: tc.want}
+			encryptRequest := kmsv1.EncryptRequest{Version: version, Plain: tc.want}
 			encryptResponse, err := client.Encrypt(context.Background(), &encryptRequest)
 			if err != nil {
 				t.Fatalf("encrypt request failed with error: %+v", err)
 			}
 
-			decryptRequest := k8spb.DecryptRequest{Version: version, Cipher: encryptResponse.Cipher}
+			decryptRequest := kmsv1.DecryptRequest{Version: version, Cipher: encryptResponse.Cipher}
 			decryptResponse, err := client.Decrypt(context.Background(), &decryptRequest)
 			if !bytes.Equal(decryptResponse.Plain, tc.want) {
 				t.Fatalf("Expected secret, but got %s - %v", string(decryptResponse.Plain), err)
@@ -85,7 +85,7 @@ func TestVersion(t *testing.T) {
 
 	for _, tc := range cases {
 		t.Run(tc.name, func(t *testing.T) {
-			request := &k8spb.VersionRequest{Version: tc.want}
+			request := &kmsv1.VersionRequest{Version: tc.want}
 			response, err := client.Version(context.Background(), request)
 			if err != nil {
 				t.Fatalf("failed get version from remote KMS provider: %v", err)
diff --git a/tests/e2e/testkmsv2.bats b/tests/e2e/testkmsv2.bats
index 2575a17e..e81f091b 100644
--- a/tests/e2e/testkmsv2.bats
+++ b/tests/e2e/testkmsv2.bats
@@ -30,6 +30,23 @@ export ETCD_KEY=/etc/kubernetes/pki/etcd/server.key
     assert_success
 }
 
+@test "check encryption count" {
+    # The expected_encryption_count value is set to 2 because the Kind creates bootstrap secret in addition to the one we create above for testing purposes.
+    local expected_encyption_count="2"
+    local metrics=$(kubectl get --raw /metrics)
+    encyption_count=$(echo "${metrics}" | grep -oP 'apiserver_envelope_encryption_key_id_hash_total\{[^\}]*transformation_type="to_storage"[^\}]*\}\s+\K\d+')
+    [[ "${encyption_count}" == "${expected_encyption_count}" ]]
+}
+
+@test "check keyID hash used for encrypt/decrypt" {
+    # expected_hash value is computed based on key used in CI.
+    # this needs to be updated when we rotate the key used in CI.
+    local expected_hash="cbda52be2f8c13d323a3b17c4679118a60b91d29454305e02ee485185b6e386f"
+    local metrics=$(kubectl get --raw /metrics)
+    hash=$(echo "${metrics}" | grep -oP 'sha256:\K[a-f0-9]+' | head -n 1)
+    [[ "${hash}" == "${expected_hash}" ]]
+}
+
 @test "check if metrics endpoint works" {
     local curl_pod_name=curl-$(openssl rand -hex 5)
     kubectl run ${curl_pod_name} --image=curlimages/curl:7.75.0 --labels="test=metrics_test" -- tail -f /dev/null