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Adding more information to the above response!
How are you trying to encrypt the AZURE VM?
Can I migrate VMs that were encrypted with an Azure AD app to encryption without an Azure AD app?
Currently, there isn't a direct migration path for machines that were encrypted with an Azure AD app to encryption without an Azure AD app. Additionally, there isn't a direct path from encryption without an Azure AD app to encryption with an AD app.
When ADE with AAD is enabled , unfortunately there isn't a way to convert this to ADE without AAD.
You can refer below link for migrate ADE from with AAD version to without AAD version,:
How to upgrade Azure Disk Encryption on a disk - Azure Virtual Machines | Microsoft Docs
Azure Disk Encryption with Azure AD for Windows VMs (previous release) - Azure Virtual Machines | Microsoft Docs
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