diff --git a/.github/workflows/gpu_tests.yml b/.github/workflows/gpu_tests.yml
index d3949bfc74..c069a01172 100644
--- a/.github/workflows/gpu_tests.yml
+++ b/.github/workflows/gpu_tests.yml
@@ -40,6 +40,10 @@ jobs:
         pip install -e .
         pip install -r requirements/common-tests.txt
         ns prepare_data gsm8k human-eval mbpp algebra222 mmlu ifeval math-500 amc23 aime24
+    - name: Build Docker image
+      run: |
+        cd ${{ github.run_id }}
+        docker build -t nemo-skills-image -f dockerfiles/Dockerfile.nemo-skills .
     - name: Run GPU tests
       timeout-minutes: 240
       env:
@@ -52,7 +56,7 @@ jobs:
     - name: Cleanup
       if: always()
       run: |
-        docker run --rm -v /tmp:/tmp -v /home:/home igitman/nemo-skills:0.7.1 bash -c 'rm -rf /tmp/nemo-skills-tests /home/azureuser/.nemo_run/'
+        docker run --rm -v /tmp:/tmp -v /home:/home nemo-skills-image bash -c 'rm -rf /tmp/nemo-skills-tests /home/azureuser/.nemo_run/'
         docker ps -a -q | xargs -r docker stop
 
   gpu-tests-qwen:
@@ -79,6 +83,10 @@ jobs:
         pip install -e .
         pip install -r requirements/common-tests.txt
         ns prepare_data gsm8k human-eval mbpp algebra222 mmlu ifeval math-500 amc23 aime24
+    - name: Build Docker image
+      run: |
+        cd ${{ github.run_id }}
+        docker build -t nemo-skills-image -f dockerfiles/Dockerfile.nemo-skills .
     - name: Run GPU tests
       timeout-minutes: 240
       env:
@@ -91,5 +99,5 @@ jobs:
     - name: Cleanup
       if: always()
       run: |
-        docker run --rm -v /tmp:/tmp -v /home:/home igitman/nemo-skills:0.7.1 bash -c 'rm -rf /tmp/nemo-skills-tests /home/azureuser/.nemo_run/'
+        docker run --rm -v /tmp:/tmp -v /home:/home nemo-skills-image bash -c 'rm -rf /tmp/nemo-skills-tests /home/azureuser/.nemo_run/'
         docker ps -a -q | xargs -r docker stop
diff --git a/.github/workflows/tests.yml b/.github/workflows/tests.yml
index 585292c0ee..521a5cc103 100644
--- a/.github/workflows/tests.yml
+++ b/.github/workflows/tests.yml
@@ -25,37 +25,21 @@ jobs:
       with:
         python-version: "3.10"
         cache: pip
-    - name: Detect Docker changes
-      id: changes
-      uses: dorny/paths-filter@v3
-      with:
-        filters: |
-          docker:
-            - 'dockerfiles/Dockerfile.sandbox'
-            - 'dockerfiles/Dockerfile.nemo-skills'
-            - 'nemo_skills/code_execution/local_sandbox/**'
-            - 'requirements/**'
     - name: Install dependencies
       run: |
         python -m pip install --upgrade pip
         pip install -e .[dev]
     - name: Build Images
-      if: steps.changes.outputs.docker == 'true'
       run: |
         # these tags need to match the ones in tests/gpu-tests/test-local.yaml
-        docker build -t igitman/nemo-skills:0.7.1 -f dockerfiles/Dockerfile.nemo-skills .
-        docker build -t igitman/nemo-skills-sandbox:0.7.1 -f dockerfiles/Dockerfile.sandbox .
-    - name: Pull Images
-      if: steps.changes.outputs.docker != 'true'
-      run: |
-        docker pull igitman/nemo-skills:0.7.1
-        docker pull igitman/nemo-skills-sandbox:0.7.1
+        docker build -t nemo-skills-image -f dockerfiles/Dockerfile.nemo-skills .
+        docker build -t nemo-skills-sandbox-image -f dockerfiles/Dockerfile.sandbox .
     - name: Run all tests
       env:
         NVIDIA_API_KEY: ${{ secrets.NVIDIA_API_KEY }}
         HF_TOKEN: ${{ secrets.HF_TOKEN }}
       run: |
-        docker run --rm --network=host igitman/nemo-skills-sandbox:0.7.1 &
+        docker run --rm --network=host nemo-skills-sandbox-image &
         sleep 10
         set -o pipefail # this will make sure next line returns non-0 exit code if tests fail
         ns prepare_data gsm8k math-500
diff --git a/MANIFEST.in b/MANIFEST.in
index a69e235884..112893bcab 100644
--- a/MANIFEST.in
+++ b/MANIFEST.in
@@ -1,2 +1,4 @@
 recursive-include nemo_skills *.yaml
 recursive-include nemo_skills *.txt
+graft dockerfiles
+graft requirements
diff --git a/cluster_configs/example-local.yaml b/cluster_configs/example-local.yaml
index 7588fb80f8..d7f025fec5 100644
--- a/cluster_configs/example-local.yaml
+++ b/cluster_configs/example-local.yaml
@@ -18,12 +18,12 @@ containers:
   trtllm: nvcr.io/nvidia/tensorrt-llm/release:1.0.0
   vllm: vllm/vllm-openai:v0.10.1.1
   sglang: lmsysorg/sglang:v0.5.3rc1-cu126
-  nemo: igitman/nemo-skills-nemo:0.7.0
-  megatron: igitman/nemo-skills-megatron:0.7.0
-  sandbox: igitman/nemo-skills-sandbox:0.7.1
-  nemo-skills: igitman/nemo-skills:0.7.1
-  verl: igitman/nemo-skills-verl:0.7.0
-  nemo-rl: igitman/nemo-skills-nemo-rl:0.7.1
+  # dockerfile: for now can only specify relative to repo root
+  megatron: dockerfile:dockerfiles/Dockerfile.megatron
+  sandbox: dockerfile:dockerfiles/Dockerfile.sandbox
+  nemo-skills: dockerfile:dockerfiles/Dockerfile.nemo-skills
+  verl: dockerfile:dockerfiles/Dockerfile.verl
+  nemo-rl: dockerfile:dockerfiles/Dockerfile.nemo-rl
 
 # add required mounts for models/data here
 # the code is mounted automatically inside /nemo_run/code
@@ -34,8 +34,8 @@ containers:
 #   - /mnt/datadrive/models:/models
 #   - /mnt/datadrive/data:/data
 #   - /home/<username>/workspace:/workspace
-#   you can also override container libraries by directly mounting over them. E.g. to override NeMo-Aligner do
-#   - <...>/NeMo-Aligner:/opt/NeMo-Aligner
+#   you can also override container libraries by directly mounting over them. E.g. to override NeMo-RL do
+#   - <...>/NeMo-RL:/opt/NeMo-RL
 
 # define any environment variables. Note that HF_HOME is required by default and needs to be a mounted path!
 # env_vars:
diff --git a/cluster_configs/example-slurm.yaml b/cluster_configs/example-slurm.yaml
index 7a32565ebc..3cf914cafa 100644
--- a/cluster_configs/example-slurm.yaml
+++ b/cluster_configs/example-slurm.yaml
@@ -15,15 +15,8 @@
 executor: slurm
 
 containers:
-  trtllm: nvcr.io/nvidia/tensorrt-llm/release:1.0.0
-  vllm: vllm/vllm-openai:v0.10.1.1
-  sglang: lmsysorg/sglang:v0.5.3rc1-cu126
-  nemo: igitman/nemo-skills-nemo:0.7.0
-  megatron: igitman/nemo-skills-megatron:0.7.0
-  sandbox: igitman/nemo-skills-sandbox:0.7.1
-  nemo-skills: igitman/nemo-skills:0.7.1
-  verl: igitman/nemo-skills-verl:0.7.0
-  nemo-rl: igitman/nemo-skills-nemo-rl:0.7.1
+  # follow steps in https://nvidia-nemo.github.io/Skills/basics/#slurm-inference
+  # to complete this section
 
 job_name_prefix: "nemo_skills:"
 
diff --git a/dockerfiles/Dockerfile.nemo b/dockerfiles/Dockerfile.nemo
deleted file mode 100644
index a333b44f6a..0000000000
--- a/dockerfiles/Dockerfile.nemo
+++ /dev/null
@@ -1,169 +0,0 @@
-# Copyright (c) 2024, NVIDIA CORPORATION.  All rights reserved.
-#
-# Licensed under the Apache License, Version 2.0 (the "License");
-# you may not use this file except in compliance with the License.
-# You may obtain a copy of the License at
-#
-#     http://www.apache.org/licenses/LICENSE-2.0
-#
-# Unless required by applicable law or agreed to in writing, software
-# distributed under the License is distributed on an "AS IS" BASIS,
-# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
-# See the License for the specific language governing permissions and
-# limitations under the License.
-
-# copied from https://github.com/NVIDIA/NeMo-Aligner/blob/main/Dockerfile
-# with pinned NeMo-Aligner version for reproducibility
-
-# To build NeMo-Aligner from a base PyTorch container:
-#
-#   docker buildx build -t aligner:latest .
-#
-# To update NeMo-Aligner from a pre-built NeMo-Framework container:
-#
-#   docker buildx build --target=aligner-bump -t aligner:latest .
-#
-
-# Number of parallel threads for compute heavy build jobs
-# if you get errors building TE or Apex, decrease this to 4
-ARG MAX_JOBS=8
-# Git refs for dependencies
-ARG TE_TAG=7d576ed25266a17a7b651f2c12e8498f67e0baea
-ARG PYTRITON_VERSION=0.5.10
-ARG NEMO_TAG=19668e5320a2e2af0199b6d5e0b841993be3a634  # On: main
-ARG MLM_TAG=25059d3bbf68be0751800f3644731df12a88f3f3   # On: main
-ARG ALIGNER_COMMIT=35fcfd9df754aff56f71cb3ba3382cc02384361a
-ARG TRTLLM_VERSION=v0.13.0
-ARG PROTOBUF_VERSION=4.24.4
-ARG BASE_IMAGE=nvcr.io/nvidia/pytorch:24.07-py3
-
-FROM ${BASE_IMAGE} AS aligner-bump
-ARG ALIGNER_COMMIT
-WORKDIR /opt
-# NeMo Aligner
-RUN <<"EOF" bash -exu
-if [[ ! -d NeMo-Aligner ]]; then
-    git clone https://github.com/NVIDIA/NeMo-Aligner.git
-fi
-cd NeMo-Aligner
-git fetch origin '+refs/pull/*/merge:refs/remotes/pull/*/merge'
-git checkout -f $ALIGNER_COMMIT
-# case 1: ALIGNER_COMMIT is a local branch so we have to apply remote changes to it
-# case 2: ALIGNER_COMMIT is a commit, so git-pull is expected to fail
-git pull --rebase || true
-
-pip install --no-cache-dir --no-deps -e .
-EOF
-
-FROM ${BASE_IMAGE} as final
-LABEL "nemo.library"="nemo-aligner"
-WORKDIR /opt
-# needed in case git complains that it can't detect a valid email, this email is fake but works
-RUN git config --global user.email "worker@nvidia.com"
-# install latest apex
-ARG APEX_TAG
-RUN pip uninstall -y apex && \
-    git clone https://github.com/NVIDIA/apex && \
-    cd apex && \
-    if [ ! -z $APEX_TAG ]; then \
-        git fetch origin $APEX_TAG && \
-        git checkout FETCH_HEAD; \
-    fi && \
-    pip install -v --no-build-isolation --disable-pip-version-check --no-cache-dir --config-settings "--build-option=--cpp_ext --cuda_ext --fast_layer_norm --distributed_adam --deprecated_fused_adam" ./
-
-# Git LFS
-RUN curl -s https://packagecloud.io/install/repositories/github/git-lfs/script.deb.sh | bash && \
-    apt-get install git-lfs && \
-    git lfs install && \
-    apt-get clean
-
-# TRTLLM
-ARG TRTLLM_VERSION
-RUN git clone https://github.com/NVIDIA/TensorRT-LLM.git && \
-    cd TensorRT-LLM && \
-    git checkout ${TRTLLM_VERSION} && \
-    . docker/common/install_tensorrt.sh && \
-    python3 ./scripts/build_wheel.py --job_count $(nproc) --trt_root /usr/local/tensorrt  --python_bindings --benchmarks && \
-    pip install -e .
-ENV LD_LIBRARY_PATH=$LD_LIBRARY_PATH:/usr/local/cuda-12/compat/lib.real/
-
-# install TransformerEngine
-ARG MAX_JOBS
-ARG TE_TAG
-RUN pip uninstall -y transformer-engine && \
-    git clone https://github.com/NVIDIA/TransformerEngine.git && \
-    cd TransformerEngine && \
-    if [ ! -z $TE_TAG ]; then \
-        git fetch origin $TE_TAG && \
-        git checkout FETCH_HEAD; \
-    fi && \
-    git submodule init && git submodule update && \
-    NVTE_FRAMEWORK=pytorch NVTE_WITH_USERBUFFERS=1 MPI_HOME=/usr/local/mpi pip install .
-
-RUN pip install fire
-
-# place any util pkgs here
-ARG PYTRITON_VERSION
-RUN pip install --upgrade-strategy only-if-needed nvidia-pytriton==$PYTRITON_VERSION
-ARG PROTOBUF_VERSION
-RUN pip install -U --no-deps protobuf==$PROTOBUF_VERSION
-RUN pip install --upgrade-strategy only-if-needed jsonlines
-
-# NeMo
-ARG NEMO_TAG
-RUN git clone https://github.com/NVIDIA/NeMo.git && \
-    cd NeMo && \
-    git pull && \
-    if [ ! -z $NEMO_TAG ]; then \
-        git fetch origin $NEMO_TAG && \
-        git checkout FETCH_HEAD; \
-    fi && \
-    pip uninstall -y nemo_toolkit sacrebleu && \
-    pip install -e ".[nlp]" && \
-    cd nemo/collections/nlp/data/language_modeling/megatron && make
-
-# MLM
-ARG MLM_TAG
-RUN pip uninstall -y megatron-core && \
-    git clone https://github.com/NVIDIA/Megatron-LM.git && \
-    cd Megatron-LM && \
-    git pull && \
-    if [ ! -z $MLM_TAG ]; then \
-        git fetch origin $MLM_TAG && \
-        git checkout FETCH_HEAD; \
-    fi && \
-    pip install -e .
-
-COPY --from=aligner-bump /opt/NeMo-Aligner /opt/NeMo-Aligner
-RUN cd /opt/NeMo-Aligner && \
-    pip install --no-deps -e .
-
-RUN cd TensorRT-LLM && patch -p1 < ../NeMo-Aligner/setup/trtllm.patch
-
-# TODO(terryk): This layer should be deleted ASAP after NeMo is bumped to include all of these PRs
-RUN <<"EOF" bash -exu
-cd NeMo
-# Ensures we don't cherry-pick "future" origin/main commits
-git fetch -a
-# 0c92fe17df4642ffc33d5d8c0c83fda729e3910c: [fix] Ensures disabling exp_manager with exp_manager=null does not error NeMo#10651
-# 60e677423667c029dd05875da72bf0719774f844: [feat] Update get_model_parallel_src_rank to support tp-pp-dp ordering NeMo#10652
-# 0deaf6716cb4f20766c995ce25d129795f1ae200: fix[export]: update API for disabling device reassignment in TRTLLM for Aligner NeMo#10863
-# (superceded by 10863) 148543d6e9c66ff1f8562e84484448202249811d: feat: Migrate GPTSession refit path in Nemo export to ModelRunner for Aligner NeMo#10654
-for pr_and_commit in \
-  "10651 0c92fe17df4642ffc33d5d8c0c83fda729e3910c" \
-  "10652 60e677423667c029dd05875da72bf0719774f844" \
-  "10863 0deaf6716cb4f20766c995ce25d129795f1ae200" \
-; do
-  pr=$(cut -f1 -d' ' <<<"$pr_and_commit")
-  head_pr_commit=$(cut -f2 -d' ' <<<"$pr_and_commit")
-  git fetch origin $head_pr_commit:PR-${pr}
-  # cherry-picks all commits between main and the top of the PR
-  git cherry-pick --allow-empty $(git merge-base origin/main PR-${pr})..PR-${pr}
-  # Tag cherry-picks to help
-  git tag cherry-pick-PR-${pr}
-done
-EOF
-
-# patching gpt sft dataset to properly support packing
-# TODO: remove when integrated in NeMo
-COPY nemo_skills/training/gpt_sft_dataset.py /opt/NeMo/nemo/collections/nlp/data/language_modeling/megatron/gpt_sft_dataset.py
diff --git a/dockerfiles/Dockerfile.nemo-skills b/dockerfiles/Dockerfile.nemo-skills
index 1683368c4a..25f6499808 100644
--- a/dockerfiles/Dockerfile.nemo-skills
+++ b/dockerfiles/Dockerfile.nemo-skills
@@ -36,14 +36,6 @@ RUN cd /opt/gorilla/berkeley-function-call-leaderboard && pip install -e .
 
 RUN apt remove -y python3-blinker
 
-RUN mkdir -p /opt/NeMo-Skills/requirements
-COPY pyproject.toml README.md /opt/NeMo-Skills/
-COPY nemo_skills /opt/NeMo-Skills/nemo_skills/
-COPY requirements /opt/NeMo-Skills/requirements/
-# installing sdp in container only
-RUN pip install git+https://github.com/NVIDIA/NeMo-speech-data-processor@29b9b1ec0ceaf3ffa441c1d01297371b3f8e11d2
-RUN cd /opt/NeMo-Skills && pip install -e .
-
 # ifbench
 RUN git clone https://github.com/allenai/IFBench.git /opt/benchmarks/IFBench --depth=1
 RUN cd /opt/benchmarks/IFBench && pip install -r requirements.txt
@@ -55,3 +47,12 @@ RUN cd /opt/benchmarks/IFBench && git apply ifbench.patch
 RUN pip install langdetect absl-py immutabledict nltk ipython && \
     python -c "import nltk; from spacy.cli import download; nltk.download('punkt'); nltk.download('punkt_tab'); \
     nltk.download('stopwords'); nltk.download('averaged_perceptron_tagger_eng'); download('en_core_web_sm')"
+
+# we aren't copying main nemo_skills folder as it will always be mounted from host
+# but we do want to install all requirements in the container directly
+RUN mkdir -p /opt/NeMo-Skills/requirements
+COPY pyproject.toml README.md /opt/NeMo-Skills/
+COPY requirements /opt/NeMo-Skills/requirements/
+# installing sdp in container only
+RUN pip install git+https://github.com/NVIDIA/NeMo-speech-data-processor@29b9b1ec0ceaf3ffa441c1d01297371b3f8e11d2
+RUN pip install -r /opt/NeMo-Skills/requirements/main.txt
diff --git a/dockerfiles/README.md b/dockerfiles/README.md
index 0e5197d142..86182fabad 100644
--- a/dockerfiles/README.md
+++ b/dockerfiles/README.md
@@ -4,7 +4,7 @@ Some dockerfiles are directly included in this folder and for some others the in
 
 The dockerfiles can be built using the standard docker build command. e.g.,
 ```shell
-docker build -t igitman/nemo-skills:0.7.1 -f dockerfiles/Dockerfile.nemo-skills .
+docker build -t nemo-skills-image:0.7.1 -f dockerfiles/Dockerfile.nemo-skills .
 ```
 
 In addition, we provide a utility script which provides sane build defaults
diff --git a/docs/basics/index.md b/docs/basics/index.md
index 49efee39f6..436496c104 100644
--- a/docs/basics/index.md
+++ b/docs/basics/index.md
@@ -98,9 +98,12 @@ config might look like
 executor: local
 
 containers:
+  # some containers are public and we pull them
   trtllm: nvcr.io/nvidia/tensorrt-llm/release:1.0.0
   vllm: vllm/vllm-openai:v0.10.1.1
-  nemo: igitman/nemo-skills-nemo:0.7.0
+  # some containers are custom and we will build them locally before running the job
+  # you can always pre-build them as well
+  nemo-skills: dockerfile:dockerfiles/Dockerfile.nemo-skills
   # ... there are some more containers defined here
 
 env_vars:
@@ -172,6 +175,34 @@ leverage a Slurm cluster[^2]. Let's setup our cluster config for that case by ru
 This time pick `slurm` for the config type and fill out all other required information
 (such as ssh access, account, partition, etc.).
 
+!!! note
+    If you're an NVIDIA employee, we have a pre-configured cluster configs for internal usage with pre-built sqsh
+    containers available at https://gitlab-master.nvidia.com/igitman/nemo-skills-configs. You can most likely
+    skip the step below and reuse one of the existing configurations.
+
+You will also need to build .sqsh files for all containers or upload all `dockerfile:...` containers to
+some registry (e.g. dockerhub) and reference the uploaded versions. To build sqsh files you can use the following commands
+
+1. Build images locally and upload to some container registry. E.g.
+   ```bash
+   docker build -t gitlab-master.nvidia.com/igitman/nemo-skills-containers:nemo-skills-0.7.1 -f dockerfiles/Dockerfile.nemo-skills .
+   docker push gitlab-master.nvidia.com/igitman/nemo-skills-containers:nemo-skills-0.7.1
+   ```
+2. Start an interactive shell, e.g. with the following (assuming there is a "cpu" partition)
+   ```bash
+   srun -A <account> --partition cpu --job-name build-sqsh --time=1:00:00 --exclusive --pty /bin/bash -l
+   ```
+3. Import the image, e.g.:
+   ```bash
+   enroot import -o /path/to/nemo-skills-image.sqsh --docker://gitlab-master.nvidia.com/igitman/nemo-skills-containers:nemo-skills-0.7.1
+   ```
+4. Specify this image path in your cluster config
+   ```yaml
+   containers:
+     nemo-skills: /path/to/nemo-skills-image.sqsh
+   ```
+```
+
 Now that we have a slurm config setup, we can try running some jobs. Generally, you will need to upload models / data
 on cluster manually and then reference a proper mounted path. But for small-scale things we can also leverage the
 [code packaging](./code-packaging.md) functionality that nemo-skills provide. Whenever you run any of the ns commands
diff --git a/docs/basics/sandbox.md b/docs/basics/sandbox.md
index 25a66b00e1..2a4ae23ada 100644
--- a/docs/basics/sandbox.md
+++ b/docs/basics/sandbox.md
@@ -18,7 +18,7 @@ Most of the time, the pipeline scripts will launch sandbox automatically when re
 it manually, you can use the following command
 
 ```bash
-docker run --rm --network=host igitman/nemo-skills-sandbox:0.7.1
+./nemo_skills/code_execution/local_sandbox/start_local_sandbox.sh
 ```
 
 If docker is not available, you can still run a sandbox (although less efficient version) like this
diff --git a/nemo_skills/__init__.py b/nemo_skills/__init__.py
index 5817bc9fa1..af63dea75a 100644
--- a/nemo_skills/__init__.py
+++ b/nemo_skills/__init__.py
@@ -19,9 +19,9 @@
     "trtllm": "nvcr.io/nvidia/tensorrt-llm/release:1.0.0",
     "vllm": "vllm/vllm-openai:v0.10.1.1",
     "sglang": "lmsysorg/sglang:v0.5.3rc1-cu126",
-    "megatron": "igitman/nemo-skills-megatron:0.7.0",
-    "sandbox": "igitman/nemo-skills-sandbox:0.7.1",
-    "nemo-skills": "igitman/nemo-skills:0.7.1",
-    "verl": "igitman/nemo-skills-verl:0.7.0",
-    "nemo-rl": "igitman/nemo-skills-nemo-rl:0.7.1",
+    "megatron": "dockerfile:dockerfiles/Dockerfile.megatron",
+    "sandbox": "dockerfile:dockerfiles/Dockerfile.sandbox",
+    "nemo-skills": "dockerfile:dockerfiles/Dockerfile.nemo-skills",
+    "verl": "dockerfile:dockerfiles/Dockerfile.verl",
+    "nemo-rl": "dockerfile:dockerfiles/Dockerfile.nemo-rl",
 }
diff --git a/nemo_skills/pipeline/setup.py b/nemo_skills/pipeline/setup.py
index 46d760df29..c767a9ce5a 100644
--- a/nemo_skills/pipeline/setup.py
+++ b/nemo_skills/pipeline/setup.py
@@ -22,6 +22,7 @@
 from nemo_skills import _containers
 from nemo_skills.pipeline.app import app
 from nemo_skills.pipeline.utils import is_mounted_filepath
+from nemo_skills.pipeline.utils.docker_images import resolve_container_image
 
 
 def is_docker_available():
@@ -35,12 +36,20 @@ def is_docker_available():
 # Helper function to pull Docker containers
 def pull_docker_containers(containers):
     for container_name, container_image in containers.items():
-        typer.echo(f"Pulling {container_name}: {container_image}...")
-        try:
-            subprocess.run(["docker", "pull", container_image], check=True)
-            typer.echo(f"Successfully pulled {container_image}")
-        except subprocess.SubprocessError as e:
-            typer.echo(f"Failed to pull {container_image}: {e}")
+        if container_image.startswith("dockerfile:"):
+            typer.echo(f"Building {container_name} from {container_image}...")
+            try:
+                resolved_image = resolve_container_image(container_image, {"executor": "local"})
+                typer.echo(f"Successfully built {resolved_image}")
+            except Exception as e:
+                typer.echo(f"Failed to build {container_image}: {e}")
+        else:
+            typer.echo(f"Pulling {container_name}: {container_image}...")
+            try:
+                subprocess.run(["docker", "pull", container_image], check=True)
+                typer.echo(f"Successfully pulled {container_image}")
+            except subprocess.SubprocessError as e:
+                typer.echo(f"Failed to pull {container_image}: {e}")
 
 
 @app.command()
@@ -81,8 +90,10 @@ def setup():
             if not overwrite:
                 continue
 
-        # initializing default containers
-        config = {"executor": config_type, "containers": _containers}
+        # initialize config with executor only; containers handled per executor type
+        config = {"executor": config_type}
+        if config_type == "local":
+            config["containers"] = dict(_containers)
 
         mounts = typer.prompt(
             "\nWe execute all commands in docker containers, so you need to "
@@ -201,21 +212,37 @@ def setup():
                 }
 
         # Create the config file
+        yaml_content = yaml.dump(config, sort_keys=False, indent=4)
+        if config_type == "slurm":
+            slurm_comment = (
+                "executor: slurm\n\n"
+                "containers:\n"
+                "  # follow steps in https://nvidia-nemo.github.io/Skills/basics/#slurm-inference\n"
+                "  # to complete this section\n\n"
+            )
+            yaml_content = yaml_content.replace("executor: slurm\n", slurm_comment)
         with open(config_file, "wt") as fout:
-            yaml.dump(config, fout, sort_keys=False, indent=4)
+            fout.write(yaml_content)
 
-        typer.echo(
-            f"\nCreated {config_type} config file at {config_file}.\n"
-            f"The containers section was initialized with default values, but you can always change them manually.\n"
-            f"You can find more information on what containers we use in "
-            f"https://github.com/NVIDIA-NeMo/Skills/tree/main/dockerfiles"
-        )
+        if config_type == "local":
+            typer.echo(
+                f"\nCreated {config_type} config file at {config_file}.\n"
+                f"The containers section was initialized with default values, but you can always change them manually.\n"
+                f"You can find more information on what containers we use in "
+                f"https://github.com/NVIDIA-NeMo/Skills/tree/main/dockerfiles"
+            )
+        else:
+            typer.echo(
+                f"\nCreated {config_type} config file at {config_file}.\n"
+                "We left the containers section empty. Follow the instructions at "
+                "https://nvidia-nemo.github.io/Skills/basics/#slurm-inference to configure your cluster containers."
+            )
 
         if config_type == "local":
             pull_containers = typer.confirm(
-                "\nWould you like to pull all the necessary Docker containers now? "
+                "\nWould you like to pull/build all the necessary Docker containers now? "
                 "This might take some time but ensures everything is ready to use.\n"
-                "You can skip this step and we will pull the containers automatically when you run the first job.",
+                "You can skip this step and we will pull/build the containers automatically when you run the first job.",
                 default=True,
             )
 
diff --git a/nemo_skills/pipeline/utils/__init__.py b/nemo_skills/pipeline/utils/__init__.py
index 875bb5a552..99da28fa42 100644
--- a/nemo_skills/pipeline/utils/__init__.py
+++ b/nemo_skills/pipeline/utils/__init__.py
@@ -31,6 +31,7 @@
     tunnel_hash,
     update_ssh_tunnel_config,
 )
+from nemo_skills.pipeline.utils.docker_images import resolve_container_image
 from nemo_skills.pipeline.utils.exp import (
     CustomJobDetails,
     add_task,
diff --git a/nemo_skills/pipeline/utils/docker_images.py b/nemo_skills/pipeline/utils/docker_images.py
new file mode 100644
index 0000000000..a1036f74f2
--- /dev/null
+++ b/nemo_skills/pipeline/utils/docker_images.py
@@ -0,0 +1,97 @@
+# Copyright (c) 2025, NVIDIA CORPORATION.  All rights reserved.
+#
+# Licensed under the Apache License, Version 2.0 (the "License");
+# you may not use this file except in compliance with the License.
+# You may obtain a copy of the License at
+#
+#     http://www.apache.org/licenses/LICENSE-2.0
+#
+# Unless required by applicable law or agreed to in writing, software
+# distributed under the License is distributed on an "AS IS" BASIS,
+# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+# See the License for the specific language governing permissions and
+# limitations under the License.
+
+import hashlib
+import logging
+import re
+import subprocess
+from pathlib import Path
+
+from nemo_skills.utils import get_logger_name
+
+LOG = logging.getLogger(get_logger_name(__file__))
+
+_DOCKERFILE_PREFIX = "dockerfile:"
+_REPO_ROOT = Path(__file__).resolve().parents[3]
+
+
+def _sanitize_image_component(value: str) -> str:
+    sanitized = re.sub(r"[^a-z0-9]+", "-", value.lower()).strip("-")
+    return sanitized
+
+
+def _resolve_dockerfile_path(dockerfile_path_str: str) -> Path:
+    dockerfile_path = Path(dockerfile_path_str.strip())
+    if dockerfile_path.is_absolute():
+        raise ValueError("Dockerfile path must be specified relative to the repository root.")
+
+    resolved = (_REPO_ROOT / dockerfile_path).resolve()
+    try:
+        resolved.relative_to(_REPO_ROOT)
+    except ValueError as exc:
+        raise ValueError(f"Dockerfile path '{dockerfile_path}' escapes the repository root.") from exc
+
+    if not resolved.exists():
+        raise FileNotFoundError(
+            f"Dockerfile '{dockerfile_path}' not found relative to repository root '{_REPO_ROOT}'."
+        )
+    if not resolved.is_file():
+        raise ValueError(f"Dockerfile path '{dockerfile_path}' does not resolve to a file.")
+
+    return resolved
+
+
+def _build_local_docker_image(dockerfile_spec: str) -> str:
+    dockerfile_path = _resolve_dockerfile_path(dockerfile_spec)
+    rel_identifier = dockerfile_path.relative_to(_REPO_ROOT).as_posix()
+    image_name = f"locally-built-{_sanitize_image_component(rel_identifier)}"
+    digest = hashlib.sha256(dockerfile_path.read_bytes()).hexdigest()[:12]
+    image_ref = f"{image_name}:{digest}"
+    context_dir = _REPO_ROOT
+
+    LOG.info("Building Docker image %s from %s (context: %s)", image_ref, dockerfile_path, context_dir)
+    try:
+        subprocess.run(
+            [
+                "docker",
+                "build",
+                "-f",
+                str(dockerfile_path),
+                "-t",
+                image_ref,
+                str(context_dir),
+            ],
+            check=True,
+        )
+    except FileNotFoundError as exc:
+        raise RuntimeError(
+            "Docker is required to build images from dockerfile specifications, but it was not found in PATH."
+        ) from exc
+    except subprocess.CalledProcessError as exc:
+        raise RuntimeError(f"Failed to build Docker image from {dockerfile_path}") from exc
+
+    return image_ref
+
+
+def resolve_container_image(container: str, cluster_config: dict) -> str:
+    if not container.startswith(_DOCKERFILE_PREFIX):
+        return container
+
+    if cluster_config["executor"] != "local":
+        raise ValueError("dockerfile container specifications are only supported for the local executor.")
+
+    dockerfile_spec = container[len(_DOCKERFILE_PREFIX) :].strip()
+    if not dockerfile_spec:
+        raise ValueError("dockerfile container specification must include a path.")
+    return _build_local_docker_image(dockerfile_spec)
diff --git a/nemo_skills/pipeline/utils/exp.py b/nemo_skills/pipeline/utils/exp.py
index df5fa98767..be2328b012 100644
--- a/nemo_skills/pipeline/utils/exp.py
+++ b/nemo_skills/pipeline/utils/exp.py
@@ -34,6 +34,7 @@
     temporary_env_update,
     tunnel_hash,
 )
+from nemo_skills.pipeline.utils.docker_images import resolve_container_image
 from nemo_skills.pipeline.utils.mounts import (
     check_remote_mount_directories,
     get_mounts_from_config,
@@ -196,8 +197,9 @@ def get_executor(
 
     if cluster_config["executor"] == "local":
         env_vars["PYTHONUNBUFFERED"] = "1"  # this makes sure logs are streamed right away
+        resolved_container = resolve_container_image(container, cluster_config)
         return DockerExecutor(
-            container_image=container,
+            container_image=resolved_container,
             packager=packager,
             ipc_mode="host",
             volumes=mounts,
diff --git a/nemo_skills/pipeline/utils/mounts.py b/nemo_skills/pipeline/utils/mounts.py
index 16250bef61..b55aa9b5bb 100644
--- a/nemo_skills/pipeline/utils/mounts.py
+++ b/nemo_skills/pipeline/utils/mounts.py
@@ -360,7 +360,7 @@ def resolve_mount_paths(cluster_config: dict, mount_paths: str | list | dict, cr
 
 
 def check_remote_mount_directories(directories: list, cluster_config: dict, exit_on_failure: bool = True):
-    """Create a remote directory on the cluster."""
+    """Check if a directory exists on the cluster."""
     if cluster_config is None:
         raise ValueError("Cluster config is not provided.")
     if isinstance(directories, str):
@@ -373,22 +373,8 @@ def check_remote_mount_directories(directories: list, cluster_config: dict, exit
     ]
 
     if cluster_config.get("executor") != "slurm":
-        tunnel = run.LocalTunnel(job_dir=None)
-        missing_source_locations = []
-        for directory in directories:
-            result = tunnel.run(f'test -e {directory} && echo "Directory Exists"', hide=True, warn=True)
-            if "Directory Exists" not in result.stdout:
-                missing_source_locations.append(directory)
-        tunnel.cleanup()
-        if len(missing_source_locations) > 0 and exit_on_failure:
-            missing_source_locations = [
-                f"{loc} DOES NOT exist at source destination" for loc in missing_source_locations
-            ]
-            missing_source_locations = "\n".join(missing_source_locations)
-            raise FileNotFoundError(
-                f"Some files or directories do not exist at the source location for mounting !!\n\n"
-                f"{missing_source_locations}"
-            )
+        # there is no error locally if mounts aren't present, so we are skipping the check
+        return
     elif cluster_config.get("executor") == "slurm":
         tunnel = get_tunnel(cluster_config)
         missing_source_locations = []
diff --git a/tests/conftest.py b/tests/conftest.py
index d391f99d48..f975044637 100644
--- a/tests/conftest.py
+++ b/tests/conftest.py
@@ -25,7 +25,7 @@ def docker_run(command, image_name=None, volume_paths=None):
         config = yaml.safe_load(f.read())
 
     if image_name is None:
-        image_name = config["containers"]["nemo-skills"]
+        image_name = "bash"
     if volume_paths is None:
         volume_paths = config["mounts"]
 
@@ -39,7 +39,7 @@ def docker_run(command, image_name=None, volume_paths=None):
             volumes[os.path.abspath(src)] = {"bind": dst, "mode": "rw"}
 
         # Run the container
-        full_command = f"/bin/bash -c '{command}'"
+        full_command = f"bash -c '{command}'"
         result = client.containers.run(
             image_name,
             command=full_command,
diff --git a/tests/gpu-tests/test-local.yaml b/tests/gpu-tests/test-local.yaml
index dff1d5b9fd..57ba7d635a 100644
--- a/tests/gpu-tests/test-local.yaml
+++ b/tests/gpu-tests/test-local.yaml
@@ -18,12 +18,11 @@ containers:
   trtllm: nvcr.io/nvidia/tensorrt-llm/release:1.0.0
   vllm: vllm/vllm-openai:v0.10.1.1
   sglang: lmsysorg/sglang:v0.5.3rc1-cu126
-  nemo: igitman/nemo-skills-nemo:0.7.0
-  megatron: igitman/nemo-skills-megatron:0.7.0
-  sandbox: igitman/nemo-skills-sandbox:0.7.1
-  nemo-skills: igitman/nemo-skills:0.7.1
-  verl: igitman/nemo-skills-verl:0.7.0
-  nemo-rl: igitman/nemo-skills-nemo-rl:0.7.1
+  sandbox: dockerfile:dockerfiles/Dockerfile.sandbox
+  nemo-skills: dockerfile:dockerfiles/Dockerfile.nemo-skills
+  megatron: dockerfile:dockerfiles/Dockerfile.megatron
+  verl: dockerfile:dockerfiles/Dockerfile.verl
+  nemo-rl: dockerfile:dockerfiles/Dockerfile.nemo-rl
 
 mounts:
   - /tmp:/tmp