After playing around with virtual manager. I finally understood what is
the problem. I am writing it down for the next one with the same
problem.

As defined here: http://libvirt.org/drvqemu.html
The libvirt QEMU driver is a multi-instance driver, providing a single system 
wide privileged driver (the "system" instance), and per-user unprivileged 
drivers (the "session" instance). The of the driver protocol is "qemu". Some 
example conection URIs for the libvirt driver are:  qemu:///session,  
qemu:///system

What is happening is that virtual manager lists only qemu://session (the
user instance of driver) This instance "session" does not have
privileges to write to system pool, it has only the privileges of the
user. If someone is trying to create a new virtual disk from the
"qemu://session" in the system pool, it will not work.

If you are local admin of libvirt (by default all local admins are
libvirtd admins too) you can add manage the system instance by
navigating file->add connection and select hypervision QEMU/KVM and
connection local. This will add one more connection that will be named
localhost(System). This connection is priviliged you can even edit
networks, create machines in the main pool and AFAIK vms that reside in
system instance can be configured to auto-start too.

This bug seems invalid, but there is a bug that the interface is not
helping new-comer. A bug could be considered that the first time you run
virtual-manager, it runs with "session" connection but the only
available pool is from "system"

-- 
virt-manager cannot create image file
https://bugs.launchpad.net/bugs/405388
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