diff --git a/src/main/java/org/onosproject/segmentrouting/grouphandler/PolicyGroupHandler.java b/src/main/java/org/onosproject/segmentrouting/grouphandler/PolicyGroupHandler.java
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+++ b/src/main/java/org/onosproject/segmentrouting/grouphandler/PolicyGroupHandler.java
@@ -0,0 +1,353 @@
+/*
+ * Copyright 2015 Open Networking Laboratory
+ *
+ * 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.
+ */
+package org.onosproject.segmentrouting.grouphandler;
+
+import static org.slf4j.LoggerFactory.getLogger;
+
+import java.util.ArrayList;
+import java.util.Arrays;
+import java.util.HashMap;
+import java.util.Iterator;
+import java.util.List;
+
+import org.onlab.packet.MplsLabel;
+import org.onosproject.core.ApplicationId;
+import org.onosproject.core.GroupId;
+import org.onosproject.segmentrouting.grouphandler.GroupBucketIdentifier.BucketOutputType;
+import org.onosproject.net.DeviceId;
+import org.onosproject.net.PortNumber;
+import org.onosproject.net.flow.DefaultTrafficTreatment;
+import org.onosproject.net.flow.TrafficTreatment;
+import org.onosproject.net.group.DefaultGroupBucket;
+import org.onosproject.net.group.DefaultGroupDescription;
+import org.onosproject.net.group.GroupBucket;
+import org.onosproject.net.group.GroupBuckets;
+import org.onosproject.net.group.GroupDescription;
+import org.onosproject.net.group.GroupEvent;
+import org.onosproject.net.group.GroupService;
+import org.onosproject.net.link.LinkService;
+import org.slf4j.Logger;
+
+/**
+ * A module to create group chains based on the specified device
+ * ports and label stack to be applied on each port.
+ */
+public class PolicyGroupHandler extends DefaultGroupHandler {
+
+    private final Logger log = getLogger(getClass());
+    private HashMap<PolicyGroupIdentifier, PolicyGroupIdentifier> dependentGroups =
+            new HashMap<PolicyGroupIdentifier, PolicyGroupIdentifier>();
+
+    /**
+     * Policy group handler constructor.
+     *
+     * @param deviceId device identifier
+     * @param appId application identifier
+     * @param config interface to retrieve the device properties
+     * @param linkService link service object
+     * @param groupService group service object
+     */
+    public PolicyGroupHandler(DeviceId deviceId,
+                              ApplicationId appId,
+                              DeviceProperties config,
+                              LinkService linkService,
+                              GroupService groupService) {
+        super(deviceId, appId, config, linkService, groupService);
+    }
+
+    public PolicyGroupIdentifier createPolicyGroupChain(String id,
+                                                        List<PolicyGroupParams> params) {
+        List<GroupBucketIdentifier> bucketIds = new ArrayList<GroupBucketIdentifier>();
+        for (PolicyGroupParams param: params) {
+            List<PortNumber> ports = param.getPorts();
+            if (ports == null) {
+                log.warn("createPolicyGroupChain in sw {} with wrong "
+                        + "input parameters", deviceId);
+                return null;
+            }
+
+            int labelStackSize = (param.getLabelStack() != null) ?
+                                      param.getLabelStack().size() : 0;
+
+            if (labelStackSize > 1) {
+                for (PortNumber sp : ports) {
+                    PolicyGroupIdentifier previousGroupkey = null;
+                    DeviceId neighbor = portDeviceMap.get(sp);
+                    for (int idx = 0; idx < param.getLabelStack().size(); idx++) {
+                        int label = param.getLabelStack().get(idx).intValue();
+                        if (idx == (labelStackSize - 1)) {
+                            // Innermost Group
+                            GroupBucketIdentifier bucketId =
+                                    new GroupBucketIdentifier(label,
+                                                              previousGroupkey);
+                            bucketIds.add(bucketId);
+                        } else if (idx == 0) {
+                            // Outermost Group
+                            List<GroupBucket> outBuckets = new ArrayList<GroupBucket>();
+                            GroupBucketIdentifier bucketId =
+                                    new GroupBucketIdentifier(label, sp);
+                            PolicyGroupIdentifier key = new
+                                    PolicyGroupIdentifier(id,
+                                                          Arrays.asList(param),
+                                                          Arrays.asList(bucketId));
+                            TrafficTreatment.Builder tBuilder =
+                                    DefaultTrafficTreatment.builder();
+                            tBuilder.setOutput(sp)
+                                    .setEthDst(deviceConfig.
+                                               getDeviceMac(neighbor))
+                                    .setEthSrc(nodeMacAddr)
+                                    .pushMpls()
+                                    .setMpls(MplsLabel.mplsLabel(label));
+                            outBuckets.add(DefaultGroupBucket.
+                                           createSelectGroupBucket(tBuilder.build()));
+                            GroupDescription desc = new
+                                    DefaultGroupDescription(deviceId,
+                                                            GroupDescription.Type.INDIRECT,
+                                                            new GroupBuckets(outBuckets));
+                            //TODO: BoS
+                            previousGroupkey = key;
+                            groupService.addGroup(desc);
+                        } else {
+                            // Intermediate Groups
+                            GroupBucketIdentifier bucketId =
+                                    new GroupBucketIdentifier(label,
+                                                              previousGroupkey);
+                            PolicyGroupIdentifier key = new
+                                    PolicyGroupIdentifier(id,
+                                                          Arrays.asList(param),
+                                                          Arrays.asList(bucketId));
+                            // Add to group dependency list
+                            dependentGroups.put(previousGroupkey, key);
+                            previousGroupkey = key;
+                        }
+                    }
+                }
+            } else {
+                int label = -1;
+                if (labelStackSize == 1) {
+                    label = param.getLabelStack().get(0).intValue();
+                }
+                for (PortNumber sp : ports) {
+                    GroupBucketIdentifier bucketId =
+                            new GroupBucketIdentifier(label, sp);
+                    bucketIds.add(bucketId);
+                }
+            }
+        }
+        PolicyGroupIdentifier innermostGroupkey = null;
+        if (!bucketIds.isEmpty()) {
+            innermostGroupkey = new
+                    PolicyGroupIdentifier(id,
+                                          params,
+                                          bucketIds);
+            // Add to group dependency list
+            boolean fullyResolved = true;
+            for (GroupBucketIdentifier bucketId:bucketIds) {
+                if (bucketId.type() == BucketOutputType.GROUP) {
+                    dependentGroups.put(bucketId.outGroup(),
+                                        innermostGroupkey);
+                    fullyResolved = false;
+                }
+            }
+
+            if (fullyResolved) {
+                List<GroupBucket> outBuckets = new ArrayList<GroupBucket>();
+                for (GroupBucketIdentifier bucketId:bucketIds) {
+                    DeviceId neighbor = portDeviceMap.
+                            get(bucketId.outPort());
+                    TrafficTreatment.Builder tBuilder =
+                            DefaultTrafficTreatment.builder();
+                    tBuilder.setOutput(bucketId.outPort())
+                            .setEthDst(deviceConfig.
+                                       getDeviceMac(neighbor))
+                            .setEthSrc(nodeMacAddr);
+                    if (bucketId.label() != NeighborSet.NO_EDGE_LABEL) {
+                        tBuilder.pushMpls()
+                            .setMpls(MplsLabel.mplsLabel(bucketId.label()));
+                    }
+                    //TODO: BoS
+                    outBuckets.add(DefaultGroupBucket.
+                                   createSelectGroupBucket(tBuilder.build()));
+                }
+                GroupDescription desc = new
+                        DefaultGroupDescription(deviceId,
+                                                GroupDescription.Type.SELECT,
+                                                new GroupBuckets(outBuckets));
+                groupService.addGroup(desc);
+            }
+        }
+        return innermostGroupkey;
+    }
+
+    @Override
+    protected void handleGroupEvent(GroupEvent event) {
+        if (event.type() == GroupEvent.Type.GROUP_ADDED) {
+            if (dependentGroups.get(event.subject().appCookie()) != null) {
+                PolicyGroupIdentifier dependentGroupKey = dependentGroups.get(event.subject().appCookie());
+                dependentGroups.remove(event.subject().appCookie());
+                boolean fullyResolved = true;
+                for (GroupBucketIdentifier bucketId:
+                            dependentGroupKey.bucketIds()) {
+                    if (bucketId.type() != BucketOutputType.GROUP) {
+                        continue;
+                    }
+                    if (dependentGroups.containsKey(bucketId.outGroup())) {
+                        fullyResolved = false;
+                        break;
+                    }
+                }
+
+                if (fullyResolved) {
+                    List<GroupBucket> outBuckets = new ArrayList<GroupBucket>();
+                    for (GroupBucketIdentifier bucketId:
+                                dependentGroupKey.bucketIds()) {
+                        TrafficTreatment.Builder tBuilder =
+                                DefaultTrafficTreatment.builder();
+                        if (bucketId.label() != NeighborSet.NO_EDGE_LABEL) {
+                            tBuilder.pushMpls()
+                                    .setMpls(MplsLabel.
+                                             mplsLabel(bucketId.label()));
+                        }
+                        //TODO: BoS
+                        if (bucketId.type() == BucketOutputType.PORT) {
+                            DeviceId neighbor = portDeviceMap.
+                                        get(bucketId.outPort());
+                            tBuilder.setOutput(bucketId.outPort())
+                                    .setEthDst(deviceConfig.
+                                               getDeviceMac(neighbor))
+                                     .setEthSrc(nodeMacAddr);
+                        } else {
+                            if (groupService.
+                                    getGroup(deviceId,
+                                             getGroupKey(bucketId.
+                                                       outGroup())) == null) {
+                                throw new IllegalStateException();
+                            }
+                            GroupId indirectGroupId = groupService.
+                                    getGroup(deviceId,
+                                             getGroupKey(bucketId.
+                                                         outGroup())).id();
+                            tBuilder.group(indirectGroupId);
+                        }
+                        outBuckets.add(DefaultGroupBucket.
+                                       createSelectGroupBucket(tBuilder.build()));
+                    }
+                    GroupDescription desc = new
+                            DefaultGroupDescription(deviceId,
+                                                    GroupDescription.Type.SELECT,
+                                                    new GroupBuckets(outBuckets));
+                    groupService.addGroup(desc);
+                }
+            }
+        }
+    }
+
+    public PolicyGroupIdentifier generatePolicyGroupKey(String id,
+                                   List<PolicyGroupParams> params) {
+        List<GroupBucketIdentifier> bucketIds = new ArrayList<GroupBucketIdentifier>();
+        for (PolicyGroupParams param: params) {
+            List<PortNumber> ports = param.getPorts();
+            if (ports == null) {
+                log.warn("generateGroupKey in sw {} with wrong "
+                        + "input parameters", deviceId);
+                return null;
+            }
+
+            int labelStackSize = (param.getLabelStack() != null)
+                    ? param.getLabelStack().size() : 0;
+
+            if (labelStackSize > 1) {
+                for (PortNumber sp : ports) {
+                    PolicyGroupIdentifier previousGroupkey = null;
+                    for (int idx = 0; idx < param.getLabelStack().size(); idx++) {
+                        int label = param.getLabelStack().get(idx).intValue();
+                        if (idx == (labelStackSize - 1)) {
+                            // Innermost Group
+                            GroupBucketIdentifier bucketId =
+                                    new GroupBucketIdentifier(label,
+                                                              previousGroupkey);
+                            bucketIds.add(bucketId);
+                        } else if (idx == 0) {
+                            // Outermost Group
+                            GroupBucketIdentifier bucketId =
+                                    new GroupBucketIdentifier(label, sp);
+                            PolicyGroupIdentifier key = new
+                                    PolicyGroupIdentifier(id,
+                                                          Arrays.asList(param),
+                                                          Arrays.asList(bucketId));
+                            previousGroupkey = key;
+                        } else {
+                            // Intermediate Groups
+                            GroupBucketIdentifier bucketId =
+                                    new GroupBucketIdentifier(label,
+                                                              previousGroupkey);
+                            PolicyGroupIdentifier key = new
+                                    PolicyGroupIdentifier(id,
+                                                          Arrays.asList(param),
+                                                          Arrays.asList(bucketId));
+                            previousGroupkey = key;
+                        }
+                    }
+                }
+            } else {
+                int label = -1;
+                if (labelStackSize == 1) {
+                    label = param.getLabelStack().get(0).intValue();
+                }
+                for (PortNumber sp : ports) {
+                    GroupBucketIdentifier bucketId =
+                            new GroupBucketIdentifier(label, sp);
+                    bucketIds.add(bucketId);
+                }
+            }
+        }
+        PolicyGroupIdentifier innermostGroupkey = null;
+        if (!bucketIds.isEmpty()) {
+            innermostGroupkey = new
+                    PolicyGroupIdentifier(id,
+                                          params,
+                                          bucketIds);
+        }
+        return innermostGroupkey;
+    }
+
+    public void removeGroupChain(PolicyGroupIdentifier key) {
+        if (!(key instanceof PolicyGroupIdentifier)) {
+            throw new IllegalArgumentException();
+        }
+        List<PolicyGroupIdentifier> groupsToBeDeleted =
+                new ArrayList<PolicyGroupIdentifier>();
+        groupsToBeDeleted.add(key);
+
+        Iterator<PolicyGroupIdentifier> it =
+                groupsToBeDeleted.iterator();
+
+        while (it.hasNext()) {
+            PolicyGroupIdentifier innerMostGroupKey = it.next();
+            for (GroupBucketIdentifier bucketId:
+                        innerMostGroupKey.bucketIds()) {
+                if (bucketId.type() != BucketOutputType.GROUP) {
+                    groupsToBeDeleted.add(bucketId.outGroup());
+                }
+            }
+            groupService.removeGroup(deviceId,
+                                     getGroupKey(innerMostGroupKey),
+                                     appId);
+            it.remove();
+        }
+    }
+
+}
\ No newline at end of file