Abstract: A method and apparatus for dynamically shifting between switching and routing packets efficiently to provide high packet throughput. The present invention provides a method for transmitting packets between an upstream node and a downstream node in a network that utilizes flow classification and labelling to redirect flows. The method includes the steps of establishing default virtual channels between the upstream node and the downstream node, receiving a packet at the downstream node, performing a flow classification at the downstream node on the packet to determine whether the packet belongs to a specified flow that should be redirected in the upstream node, selecting a free label at the downstream node, and informing the upstream node that future packets belonging to the specified flow should be sent with the selected free label attached. Other embodiments of the present invention include a basic switching unit and a switch gateway unit for use in a system for transmitting packets in a network.