A system and method for introducing a loopback capability for Multi-Protocol Label Switching (MPLS) bi-directional traffic trunks are discussed. MPLS is an emerging technology, which integrates Internet Protocol (IP) routing with label switching techniques. MPLS intends to provide new capabilities in the area of traffic engineering for IP networks. These traffic engineering capabilities will have to be combined with a set of complementary operation, administration and maintenance (OA&M) functions for effectively managing and operating MPLS-based networks. One such function is loopback. A loopback function provides the capability to transmit a OA&M packet on one or more segments of a bi-directional traffic trunk (BTT) in a MPLS network. Using a loopback function, parameters of a BTT, such as connectivity, delay and other Quality of Service (QoS) parameters, can be tested. The system and method provide different techniques for implementing loopback in an MPLS network.