diff --git a/packages/api/src/elastic/labels.ts b/packages/api/src/elastic/labels.ts
index 6117a2857..cafaf01e0 100644
--- a/packages/api/src/elastic/labels.ts
+++ b/packages/api/src/elastic/labels.ts
@@ -1,7 +1,7 @@
-import { Label, PageContext } from './types'
-import { client, INDEX_ALIAS } from './index'
-import { EntityType } from '../datalayer/pubsub'
 import { ResponseError } from '@elastic/elasticsearch/lib/errors'
+import { EntityType } from '../datalayer/pubsub'
+import { client, INDEX_ALIAS } from './index'
+import { Label, PageContext } from './types'
 
 export const addLabelInPage = async (
   pageId: string,
@@ -273,7 +273,8 @@ export const updateLabel = async (
 export const setLabelsForHighlight = async (
   highlightId: string,
   labels: Label[],
-  ctx: PageContext
+  ctx: PageContext,
+  labelsToAdd?: Label[]
 ): Promise<boolean> => {
   try {
     const { body } = await client.updateByQuery({
@@ -304,14 +305,17 @@ export const setLabelsForHighlight = async (
       conflicts: 'proceed', // ignore conflicts
     })
 
-    if (body.updated > 0) {
-      for (const label of labels) {
-        await ctx.pubsub.entityCreated<Label & { highlightId: string }>(
-          EntityType.LABEL,
-          { highlightId, ...label },
-          ctx.uid
+    if (labelsToAdd) {
+      // publish labels to be added
+      await Promise.all(
+        labelsToAdd.map((label) =>
+          ctx.pubsub.entityCreated<Label & { highlightId: string }>(
+            EntityType.LABEL,
+            { highlightId, ...label },
+            ctx.uid
+          )
         )
-      }
+      )
     }
 
     return true
diff --git a/packages/api/src/generated/graphql.ts b/packages/api/src/generated/graphql.ts
index c4e232e81..4da0ee7ab 100644
--- a/packages/api/src/generated/graphql.ts
+++ b/packages/api/src/generated/graphql.ts
@@ -2481,7 +2481,8 @@ export enum SetLabelsErrorCode {
 
 export type SetLabelsForHighlightInput = {
   highlightId: Scalars['ID'];
-  labelIds: Array<Scalars['ID']>;
+  labelIds?: InputMaybe<Array<Scalars['ID']>>;
+  labels?: InputMaybe<Array<CreateLabelInput>>;
 };
 
 export type SetLabelsInput = {
diff --git a/packages/api/src/generated/schema.graphql b/packages/api/src/generated/schema.graphql
index 3be069ee8..15987403a 100644
--- a/packages/api/src/generated/schema.graphql
+++ b/packages/api/src/generated/schema.graphql
@@ -1850,7 +1850,8 @@ enum SetLabelsErrorCode {
 
 input SetLabelsForHighlightInput {
   highlightId: ID!
-  labelIds: [ID!]!
+  labelIds: [ID!]
+  labels: [CreateLabelInput!]
 }
 
 input SetLabelsInput {
diff --git a/packages/api/src/resolvers/labels/index.ts b/packages/api/src/resolvers/labels/index.ts
index e9fdacab2..6b51fc374 100644
--- a/packages/api/src/resolvers/labels/index.ts
+++ b/packages/api/src/resolvers/labels/index.ts
@@ -379,7 +379,14 @@ export const setLabelsForHighlightResolver = authorized<
 >(async (_, { input }, { claims: { uid }, log, pubsub }) => {
   log.info('setLabelsForHighlightResolver')
 
-  const { highlightId, labelIds } = input
+  const { highlightId, labelIds, labels } = input
+
+  if (!labelIds && !labels) {
+    log.info('labelIds or labels must be provided')
+    return {
+      errorCodes: [SetLabelsErrorCode.BadRequest],
+    }
+  }
 
   try {
     const user = await getRepository(User).findOneBy({ id: uid })
@@ -401,19 +408,39 @@ export const setLabelsForHighlightResolver = authorized<
       }
     }
 
-    const labels = await getLabelsByIds(uid, labelIds)
-    if (labels.length !== labelIds.length) {
-      return {
-        errorCodes: [SetLabelsErrorCode.NotFound],
+    const ctx = {
+      uid,
+      pubsub,
+      refresh: true,
+    }
+    let labelsSet: Label[] = []
+    if (labels && labels.length > 0) {
+      // for new clients that send label names
+      // create labels if they don't exist
+      labelsSet = await createLabels(ctx, labels)
+    } else if (labelIds && labelIds.length > 0) {
+      // for old clients that send labelIds
+      labelsSet = await getLabelsByIds(uid, labelIds)
+      if (labelsSet.length !== labelIds.length) {
+        return {
+          errorCodes: [SetLabelsErrorCode.NotFound],
+        }
       }
     }
-
+    // filter out labels that are already set
+    const labelsToAdd = labelsSet.filter(
+      (label) =>
+        !highlight.labels?.some(
+          (highlightLabel) => highlightLabel.id === label.id
+        )
+    )
     // set labels in the highlights
-    const updated = await setLabelsForHighlight(highlightId, labels, {
-      pubsub,
-      uid,
-      refresh: true,
-    })
+    const updated = await setLabelsForHighlight(
+      highlightId,
+      labelsSet,
+      ctx,
+      labelsToAdd
+    )
     if (!updated) {
       return {
         errorCodes: [SetLabelsErrorCode.NotFound],
@@ -431,7 +458,7 @@ export const setLabelsForHighlightResolver = authorized<
     })
 
     return {
-      labels,
+      labels: labelsSet,
     }
   } catch (error) {
     log.error(error)
diff --git a/packages/api/src/schema.ts b/packages/api/src/schema.ts
index 2e600e0f1..a29c201e7 100755
--- a/packages/api/src/schema.ts
+++ b/packages/api/src/schema.ts
@@ -1837,7 +1837,8 @@ const schema = gql`
 
   input SetLabelsForHighlightInput {
     highlightId: ID!
-    labelIds: [ID!]!
+    labelIds: [ID!]
+    labels: [CreateLabelInput!]
   }
 
   union TypeaheadSearchResult = TypeaheadSearchSuccess | TypeaheadSearchError