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Have you thought about backing up to s3? You can find more details in this documentation: https://docs.rke2.io/backup_restore

Well my organisation project is on azure and vmware hybrid so no aws resources are in picture.

I came across an issue on the RKE2 GitHub repository that might be relevant to our discussion. You can see more details and the discussion here. https://github.com/rancher/rke2/issues/2709 However, unfortunately, it seems like there hasn't been much progress on this Issue.

that is how most thin provisioned disks work. Creating a file and then deleting it frees space on the filesystem, but the backing block device does not shrink. This isn’t really about RKE2 though; this is just how your VMs work.

While I haven't personally used it, RKE2 does support the S3 Compatible API. Given this, perhaps you could try using s3proxy to emulate the S3 API on Azure Blob Storage. There's a detailed discussion on this topic here.

But wont it cause the size of the vmdk of that particular node to increase drastically in the long run? @creamy-pencil-82913