diff --git a/app/javascript/dashboard/components-next/Contacts/ContactLabels/ContactLabels.vue b/app/javascript/dashboard/components-next/Contacts/ContactLabels/ContactLabels.vue
index 2078b2290..6f1c5f11a 100644
--- a/app/javascript/dashboard/components-next/Contacts/ContactLabels/ContactLabels.vue
+++ b/app/javascript/dashboard/components-next/Contacts/ContactLabels/ContactLabels.vue
@@ -1,10 +1,10 @@
 <script setup>
 import { computed, watch, onMounted, ref } from 'vue';
 import { useRoute } from 'vue-router';
-import { useI18n } from 'vue-i18n';
 import { useMapGetter, useStore } from 'dashboard/composables/store';
 
-import DropdownMenu from 'dashboard/components-next/dropdown-menu/DropdownMenu.vue';
+import LabelItem from 'dashboard/components-next/label/LabelItem.vue';
+import AddLabel from 'dashboard/components-next/label/AddLabel.vue';
 
 const props = defineProps({
   contactId: {
@@ -14,7 +14,6 @@ const props = defineProps({
 });
 
 const store = useStore();
-const { t } = useI18n();
 const route = useRoute();
 
 const showDropdown = ref(false);
@@ -100,45 +99,10 @@ onMounted(() => {
 
 <template>
   <div class="flex flex-wrap items-center gap-2">
-    <div
-      v-for="label in savedLabels"
-      :key="label.id"
-      class="bg-n-alpha-2 rounded-md flex items-center h-7 w-fit py-1 ltr:pl-1 rtl:pr-1 ltr:pr-1.5 rtl:pl-1.5"
-    >
-      <div
-        class="w-2 h-2 m-1 rounded-sm"
-        :style="{ backgroundColor: label.color }"
-      />
-      <span class="text-sm text-n-slate-12">
-        {{ label.title }}
-      </span>
-    </div>
-    <div class="relative">
-      <button
-        class="flex items-center gap-1 px-2 py-1 rounded-md outline-dashed h-[26px] outline-1 outline-n-slate-6 hover:bg-n-alpha-2"
-        :class="{ 'bg-n-alpha-2': showDropdown }"
-        @click="showDropdown = !showDropdown"
-      >
-        <span class="i-lucide-plus" />
-        <span class="text-sm text-n-slate-11">
-          {{ t('CONTACTS_LAYOUT.DETAILS.TAG_BUTTON') }}
-        </span>
-      </button>
-      <DropdownMenu
-        v-if="showDropdown"
-        v-on-clickaway="() => (showDropdown = false)"
-        :menu-items="labelMenuItems"
-        show-search
-        class="z-[100] w-48 mt-2 overflow-y-auto ltr:left-0 rtl:right-0 top-full max-h-52"
-        @action="handleLabelAction"
-      >
-        <template #thumbnail="{ item }">
-          <div
-            class="rounded-sm size-2"
-            :style="{ backgroundColor: item.thumbnail.color }"
-          />
-        </template>
-      </DropdownMenu>
-    </div>
+    <LabelItem v-for="label in savedLabels" :key="label.id" :label="label" />
+    <AddLabel
+      :label-menu-items="labelMenuItems"
+      @update-label="handleLabelAction"
+    />
   </div>
 </template>
diff --git a/app/javascript/dashboard/components-next/label/AddLabel.vue b/app/javascript/dashboard/components-next/label/AddLabel.vue
new file mode 100644
index 000000000..23c6ebe42
--- /dev/null
+++ b/app/javascript/dashboard/components-next/label/AddLabel.vue
@@ -0,0 +1,49 @@
+<script setup>
+import { ref } from 'vue';
+import { useI18n } from 'vue-i18n';
+
+import DropdownMenu from 'dashboard/components-next/dropdown-menu/DropdownMenu.vue';
+
+defineProps({
+  labelMenuItems: {
+    type: Array,
+    default: () => [],
+  },
+});
+
+const emit = defineEmits(['updateLabel']);
+
+const { t } = useI18n();
+
+const showDropdown = ref(false);
+</script>
+
+<template>
+  <div class="relative">
+    <button
+      class="flex items-center gap-1 px-2 py-1 rounded-md outline-dashed h-[26px] outline-1 outline-n-slate-6 hover:bg-n-alpha-2"
+      :class="{ 'bg-n-alpha-2': showDropdown }"
+      @click="showDropdown = !showDropdown"
+    >
+      <span class="i-lucide-plus" />
+      <span class="text-sm text-n-slate-11">
+        {{ t('CONTACTS_LAYOUT.DETAILS.TAG_BUTTON') }}
+      </span>
+    </button>
+    <DropdownMenu
+      v-if="showDropdown"
+      v-on-clickaway="() => (showDropdown = false)"
+      :menu-items="labelMenuItems"
+      show-search
+      class="z-[100] w-48 mt-2 overflow-y-auto ltr:left-0 rtl:right-0 top-full max-h-52"
+      @action="emit('updateLabel', $event)"
+    >
+      <template #thumbnail="{ item }">
+        <div
+          class="rounded-sm size-2"
+          :style="{ backgroundColor: item.thumbnail.color }"
+        />
+      </template>
+    </DropdownMenu>
+  </div>
+</template>
diff --git a/app/javascript/dashboard/components-next/label/LabelItem.vue b/app/javascript/dashboard/components-next/label/LabelItem.vue
new file mode 100644
index 000000000..b96b9b368
--- /dev/null
+++ b/app/javascript/dashboard/components-next/label/LabelItem.vue
@@ -0,0 +1,22 @@
+<script setup>
+defineProps({
+  label: {
+    type: Object,
+    default: null,
+  },
+});
+</script>
+
+<template>
+  <div
+    class="bg-n-alpha-2 rounded-md flex items-center h-7 w-fit py-1 ltr:pl-1 rtl:pr-1 ltr:pr-1.5 rtl:pl-1.5"
+  >
+    <div
+      class="w-2 h-2 m-1 rounded-sm"
+      :style="{ backgroundColor: label.color }"
+    />
+    <span class="text-sm text-n-slate-12">
+      {{ label.title }}
+    </span>
+  </div>
+</template>
diff --git a/app/javascript/dashboard/components-next/label/story/AddLabel.story.vue b/app/javascript/dashboard/components-next/label/story/AddLabel.story.vue
new file mode 100644
index 000000000..ea6466feb
--- /dev/null
+++ b/app/javascript/dashboard/components-next/label/story/AddLabel.story.vue
@@ -0,0 +1,27 @@
+<script setup>
+import AddLabel from '../AddLabel.vue';
+import { labelMenuItems } from './fixtures';
+
+function onUpdateLabel(label) {
+  console.log('Label updated:', label);
+}
+</script>
+
+<template>
+  <Story title="Components/Label/Add Label">
+    <Variant title="Default (button with label menu items with active state)">
+      <div class="h-[300px] p-4">
+        <AddLabel
+          :label-menu-items="labelMenuItems"
+          @update-label="onUpdateLabel"
+        />
+      </div>
+    </Variant>
+
+    <Variant title="Empty List (button with empty label menu)">
+      <div class="h-[300px] p-4">
+        <AddLabel :label-menu-items="[]" @update-label="onUpdateLabel" />
+      </div>
+    </Variant>
+  </Story>
+</template>
diff --git a/app/javascript/dashboard/components-next/label/story/Label.story.vue b/app/javascript/dashboard/components-next/label/story/Label.story.vue
new file mode 100644
index 000000000..5319d56ae
--- /dev/null
+++ b/app/javascript/dashboard/components-next/label/story/Label.story.vue
@@ -0,0 +1,21 @@
+<script setup>
+import Label from '../LabelItem.vue';
+import { label } from './fixtures';
+</script>
+
+<template>
+  <Story title="Components/Label/Label item">
+    <Variant title="Default">
+      <Label :label="label" />
+    </Variant>
+
+    <Variant title="Custom Label">
+      <Label
+        :label="{
+          title: 'Custom Label',
+          color: '#FF5733',
+        }"
+      />
+    </Variant>
+  </Story>
+</template>
diff --git a/app/javascript/dashboard/components-next/label/story/fixtures.js b/app/javascript/dashboard/components-next/label/story/fixtures.js
new file mode 100644
index 000000000..ba61d45bf
--- /dev/null
+++ b/app/javascript/dashboard/components-next/label/story/fixtures.js
@@ -0,0 +1,68 @@
+export const label = {
+  id: 1,
+  title: 'delivery',
+  color: '#A2FDD5',
+};
+
+export const labelMenuItems = [
+  {
+    label: 'delivery',
+    value: 3,
+    thumbnail: {
+      name: 'delivery',
+      color: '#A2FDD5',
+    },
+    isSelected: true,
+    action: 'addLabel',
+  },
+  {
+    label: 'lead',
+    value: 6,
+    thumbnail: {
+      name: 'lead',
+      color: '#F161C8',
+    },
+    isSelected: false,
+    action: 'addLabel',
+  },
+  {
+    label: 'ops-handover',
+    value: 4,
+    thumbnail: {
+      name: 'ops-handover',
+      color: '#A53326',
+    },
+    isSelected: false,
+    action: 'addLabel',
+  },
+  {
+    label: 'billing',
+    value: 1,
+    thumbnail: {
+      name: 'billing',
+      color: '#28AD21',
+    },
+    isSelected: false,
+    action: 'addLabel',
+  },
+  {
+    label: 'premium-customer',
+    value: 5,
+    thumbnail: {
+      name: 'premium-customer',
+      color: '#6FD4EF',
+    },
+    isSelected: false,
+    action: 'addLabel',
+  },
+  {
+    label: 'software',
+    value: 2,
+    thumbnail: {
+      name: 'software',
+      color: '#8F6EF2',
+    },
+    isSelected: false,
+    action: 'addLabel',
+  },
+];