Though Cisco IOS allows the Maximum Transmission Unit (MTU) on a WAN interface to be changed, it does not allow it to be changed on Ethernet or Fast Ethernet interfaces from the default of 1500 bytes. Routers fragment packets if the size of the packets is greater than the MTU of the outgoing interface.
When a Multiprotocol Label Switching (MPLS) router receives an unlabeled packet, it inserts a label before forwarding the packet. Each MPLS label is four bytes in size, and the number of labels inserted depends on the application for which MPLS is being used. MPLS VPN, which is the most common application, uses two labels, whereas three labels are used when MPLS Traffic Engineering (TE) is enabled along with MPLS VPN. This label insertion can effectively increase the size of the original IP packet to a value more than the interface MTU, resulting in fragmentation. When such packets are sent with the Do-not-Fragment (DF) bit set, packets get dropped by the router.
To avoid fragmentation of MPLS packets over Fast Ethernet interfaces, you can change the MTU for labeled packets by issuing the mpls mtu or tag-switching mtu command under the interface configuration mode. Configuring this command overrides the interface MTU for labeled packets. The value configured should account for the total size of a labeled packet by considering the number of labels that are used and the length of the IP packet.
Make sure that you configure this value on all the links in the path so that the packets are not dropped.
The maximum supported value varies by platform and interface type, though the Command Line Interface (CLI) might accept any value up to 65535. If failures occur when the MPLS MTU is set to a large number, reduce it to a value which is sufficient to forward labeled packets without fragmentation and tune the sender to send packets of size within that limit.
When the routers using Fast Ethernet interfaces are connected through a switch, the switch should be capable of forwarding packets which are larger than the usual MTU of 1500 bytes. Otherwise, they might drop the MPLS packets. Support for baby giants or jumbo frames may have to be enabled on the switches to handle the larger packets.
For related information, refer to these documents: