We have previously demonstrated that acquisition of intricate patterns of activating (H3K4me3, H3K9/K14ac) and repressive (H3K27me3) histone modifications is a hallmark of KSHV latency establishment. The precise molecular mechanisms that shape the latent histone modification landscape, however, remain unknown. Promyelocytic leukemia nuclear bodies (PML-NB), also called nuclear domain 10 (ND10), have emerged as mediators of innate immune responses that can limit viral gene expression via chromatin based mechanisms. Consequently, although ND10 functions thus far have been almost exclusively investigated in models of productive herpesvirus infection, it has been proposed that they also may contribute to the establishment of viral latency. Here, we report the first systematic study of the role of ND10 during KSHV latency establishment, and link alterations in the subcellular distribution of ND10 components to a temporal analysis of histone modification acquisition and host cell gene expression during the early infection phase. Our study demonstrates that KSHV infection results in a transient interferon response that leads to induction of the ND10 components PML and Sp100, but that repression by ND10 bodies is unlikely to contribute to KSHV latency establishment. Instead, we uncover an unexpected role for soluble Sp100 protein, which is efficiently and permanently relocalized from nucleoplasmic and chromatin-associated fractions into the insoluble matrix. We show that LANA expression is sufficient to induce Sp100 relocalization, likely via mediating SUMOylation of Sp100. Furthermore, we demonstrate that depletion of soluble Sp100 occurs precisely when repressive H3K27me3 marks first accumulate on viral genomes, and that knock-down of Sp100 (but not PML or Daxx) facilitates H3K27me3 acquisition. Collectively, our data support a model in which non-ND10 resident Sp100 acts as a negative regulator of polycomb repressive complex-2 (PRC2) recruitment, and suggest that KSHV may actively escape ND10 silencing mechanisms to promote establishment of latent chromatin.