
It seems that you tried to created new user directly from o365 portal using a federated domain as suffix for UPN.
If you want use this domain , you should create it in active directy and synced to entra ID if it's not yur case you should shoose another non federated domain (onmicrosoft.xxxxxxx.com).
If you want use this domain for Cloud only accounts , in this case you should removed it from federated domain.
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