I then copied the rootfs to /var/lib/libvirt/images/precise and booted it as an "operating system container" through virt-manager. Here are the incidents.

• It immediately showed on console "init: unable to create /dev/kmsg" but after a while it booted.
• I had modified the image to allow static password for user ubuntu and I logged in. But to my surprise I wasn't able to use sudo. The error was "sudo: setuid is not set"

I've tried this image on lxc and it works like a charm. But there seems to be some issue with libvirt. Some help would be greatly appreciated.