diff --git a/etc/keystone.conf b/etc/keystone.conf
index 4fa144df03..18ab699ed6 100755
--- a/etc/keystone.conf
+++ b/etc/keystone.conf
@@ -44,6 +44,9 @@ keystone-admin-role = Admin
 #Role that allows to perform service admin operations.
 keystone-service-admin-role = KeystoneServiceAdmin
 
+#Tells whether password user need to be hashed in the backend
+hash-password = True
+
 [keystone.backends.sqlalchemy]
 # SQLAlchemy connection string for the reference implementation registry
 # server. Any valid SQLAlchemy connection string is fine.
diff --git a/keystone/backends/__init__.py b/keystone/backends/__init__.py
index 4475b429e2..4bd9a4003d 100755
--- a/keystone/backends/__init__.py
+++ b/keystone/backends/__init__.py
@@ -28,6 +28,7 @@ ADMIN_ROLE_ID = None
 ADMIN_ROLE_NAME = None
 SERVICE_ADMIN_ROLE_ID = None
 SERVICE_ADMIN_ROLE_NAME = None
+SHOULD_HASH_PASSWORD = None
 
 
 def configure_backends(options):
@@ -43,3 +44,8 @@ def configure_backends(options):
 
     global SERVICE_ADMIN_ROLE_NAME
     SERVICE_ADMIN_ROLE_NAME = options["keystone-service-admin-role"]
+
+    global SHOULD_HASH_PASSWORD
+    if "hash-password" in options\
+        and ast.literal_eval(options["hash-password"]) == True:
+        SHOULD_HASH_PASSWORD = options["hash-password"]
diff --git a/keystone/backends/backendutils.py b/keystone/backends/backendutils.py
new file mode 100644
index 0000000000..02970b35f1
--- /dev/null
+++ b/keystone/backends/backendutils.py
@@ -0,0 +1,49 @@
+from keystone.backends import models
+import keystone.backends as backends
+from passlib.hash import sha512_crypt as sc
+
+
+def __get_hashed_password(password):
+    if password != None and len(password) > 0:
+            return __make_password(password)
+    else:
+        return None
+
+
+def set_hashed_password(values):
+    """
+    Sets hashed password for password.
+    """
+    if backends.SHOULD_HASH_PASSWORD:
+        if type(values) is dict and 'password' in values.keys():
+            values['password'] = __get_hashed_password(values['password'])
+        elif type(values) is models.User:
+            values.password = __get_hashed_password(values.password)
+
+
+def check_password(raw_password, enc_password):
+    """
+    Compares raw password and encoded password.
+    """
+    if not raw_password:
+        return False
+    if backends.SHOULD_HASH_PASSWORD:
+        return sc.verify(raw_password, enc_password)
+    else:
+        return enc_password == raw_password
+
+
+def __make_password(raw_password):
+    """
+     Produce a new encoded password.
+    """
+    if raw_password is None:
+        return None
+    hsh = __get_hexdigest(raw_password)
+    return '%s' % (hsh)
+
+
+#Refer http://packages.python.org/passlib/lib/passlib.hash.sha512_crypt.html
+#Using the default properties as of now.Salt gets generated  automatically.
+def __get_hexdigest(raw_password):
+    return sc.encrypt(raw_password)
diff --git a/keystone/backends/ldap/api/user.py b/keystone/backends/ldap/api/user.py
index 0409590e06..f13bc0a674 100644
--- a/keystone/backends/ldap/api/user.py
+++ b/keystone/backends/ldap/api/user.py
@@ -1,7 +1,7 @@
 import ldap
 import ldap.filter
 
-from keystone import utils
+import keystone.backends.backendutils as utils
 from keystone.backends.api import BaseUserAPI
 from keystone.backends.sqlalchemy.api.user import UserAPI as SQLUserAPI
 
@@ -37,7 +37,7 @@ class UserAPI(BaseLdapAPI, BaseUserAPI):
         # Persist the 'name' as the UID
         values['id'] = values['name']
         delattr(values, 'name')
-
+        utils.set_hashed_password(values)
         values = super(UserAPI, self).create(values)
         if values['tenant_id'] is not None:
             self.api.tenant.add_user(values['tenant_id'], values['id'])
@@ -55,6 +55,7 @@ class UserAPI(BaseLdapAPI, BaseUserAPI):
                     self.api.tenant.remove_user(old_obj.tenant_id, id)
                 if new_tenant:
                     self.api.tenant.add_user(new_tenant, id)
+        utils.set_hashed_password(values)
         super(UserAPI, self).update(id, values, old_obj)
 
     def delete(self, id):
@@ -113,13 +114,7 @@ class UserAPI(BaseLdapAPI, BaseUserAPI):
                 self.api.tenant.get_users(tenant_id))
 
     def check_password(self, user, password):
-        try:
-            self.api.get_connection(self._id_to_dn(user.id), password)
-        except (ldap.NO_SUCH_OBJECT, ldap.INAPPROPRIATE_AUTH,
-                ldap.INVALID_CREDENTIALS):
-            return False
-        else:
-            return True
+        return utils.check_password(password, user.password)
 
     add_redirects(locals(), SQLUserAPI, ['get_by_group', 'tenant_group',
         'tenant_group_delete', 'user_groups_get_all',
diff --git a/keystone/backends/sqlalchemy/api/user.py b/keystone/backends/sqlalchemy/api/user.py
index 8c92365aaa..56b0dfe7dd 100755
--- a/keystone/backends/sqlalchemy/api/user.py
+++ b/keystone/backends/sqlalchemy/api/user.py
@@ -15,7 +15,7 @@
 #    License for the specific language governing permissions and limitations
 #    under the License.
 
-import keystone.utils as utils
+import keystone.backends.backendutils as utils
 from keystone.backends.sqlalchemy import get_session, models, aliased, \
     joinedload
 from keystone.backends.api import BaseUserAPI
@@ -29,17 +29,11 @@ class UserAPI(BaseUserAPI):
 
     def create(self, values):
         user_ref = models.User()
-        self.__check_and_use_hashed_password(values)
+        utils.set_hashed_password(values)
         user_ref.update(values)
         user_ref.save()
         return user_ref
 
-    def __check_and_use_hashed_password(self, values):
-        if type(values) is dict and 'password' in values.keys():
-            values['password'] = utils.get_hashed_password(values['password'])
-        elif type(values) is models.User:
-            values.password = utils.get_hashed_password(values.password)
-
     def get(self, id, session=None):
         if not session:
             session = get_session()
@@ -119,7 +113,7 @@ class UserAPI(BaseUserAPI):
             session = get_session()
         with session.begin():
             user_ref = self.get(id, session)
-            self.__check_and_use_hashed_password(values)
+            utils.set_hashed_password(values)
             user_ref.update(values)
             user_ref.save(session=session)
 
@@ -315,7 +309,7 @@ class UserAPI(BaseUserAPI):
         return (prev_page, next_page)
 
     def check_password(self, user, password):
-        return user.password == utils.get_hashed_password(password)
+        return utils.check_password(password, user.password)
 
 
 def get():
diff --git a/keystone/test/etc/ldap.conf.template b/keystone/test/etc/ldap.conf.template
index 4785def848..46ed8369fa 100755
--- a/keystone/test/etc/ldap.conf.template
+++ b/keystone/test/etc/ldap.conf.template
@@ -14,6 +14,7 @@ admin_host = 0.0.0.0
 admin_port = 5001
 keystone-admin-role = Admin
 keystone-service-admin-role = KeystoneServiceAdmin
+hash-password = True
 
 [keystone.backends.sqlalchemy]
 sql_connection = for_testing_only
diff --git a/keystone/test/etc/sql.conf.template b/keystone/test/etc/sql.conf.template
index 7657fe018e..e67b37740e 100644
--- a/keystone/test/etc/sql.conf.template
+++ b/keystone/test/etc/sql.conf.template
@@ -14,6 +14,7 @@ admin_host = 0.0.0.0
 admin_port = 5001
 keystone-admin-role = Admin
 keystone-service-admin-role = KeystoneServiceAdmin
+hash-password = True
 
 [keystone.backends.sqlalchemy]
 sql_connection = for_testing_only
@@ -45,4 +46,4 @@ paste.filter_factory = keystone.middleware.url:filter_factory
 paste.filter_factory = keystone.frontends.legacy_token_auth:filter_factory
 
 [filter:RAX-KEY-extension]
-paste.filter_factory = keystone.contrib.extensions.service.raxkey.frontend:filter_factory
+paste.filter_factory = keystone.contrib.extensions.service.raxkey.frontend:filter_factory
\ No newline at end of file
diff --git a/keystone/test/unit/base.py b/keystone/test/unit/base.py
index 85cf1bfa94..b6866566c1 100644
--- a/keystone/test/unit/base.py
+++ b/keystone/test/unit/base.py
@@ -101,6 +101,7 @@ class ServiceAPITest(unittest.TestCase):
         },
         'keystone-admin-role': 'Admin',
         'keystone-service-admin-role': 'KeystoneServiceAdmin',
+        'hash-password': 'True',
     }
 
     def setUp(self):
diff --git a/keystone/utils.py b/keystone/utils.py
index b9e95cd280..444c5e21f1 100755
--- a/keystone/utils.py
+++ b/keystone/utils.py
@@ -19,9 +19,7 @@ import os
 import sys
 import logging
 import functools
-
 from webob import Response
-
 import keystone.logic.types.fault as fault
 
 
@@ -144,17 +142,6 @@ def send_legacy_result(code, headers):
     return resp
 
 
-# Currently using sha1 to hash, without a salt value.
-# Need to research relevant openstack standards.
-def get_hashed_password(password):
-    if password != None and len(password) > 0:
-        return password
-        # why is this disabled?
-        #return hashlib.sha1(password).hexdigest()
-    else:
-        return None
-
-
 def import_module(module_name, class_name=None):
     '''Import a class given a full module.class name or seperate
     module and options. If no class_name is given, it is assumed to
diff --git a/tools/pip-requires b/tools/pip-requires
index 6924166994..657d820309 100644
--- a/tools/pip-requires
+++ b/tools/pip-requires
@@ -13,6 +13,8 @@ sqlalchemy
 webob
 Routes
 httplib2
+#For Hashing
+passlib
 
 # Optional backend: LDAP
 python-ldap==2.3.13