Tagging virtual overlay packets in a virtual networking system

Embodiments of the invention provide a method for packet distribution in a virtual networking system comprising multiple virtual networks interconnected over an underlying layer network, wherein each virtual network comprises one or more computing nodes. The method comprises, for each virtual network, sending at least one outgoing packet targeting a computing node at a different virtual network, and receiving at least one incoming packet targeting a computing node of the virtual network. Each packet has a corresponding virtual networking tag that includes routing information identifying a destination virtual network for the packet.