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You can install MARS agent or MABS on your Azure VM to perform system state backup for VM in Azure.
If you install MARS agent on Azure VM, you can directly backup to recovery service vault. However, if you install MABS on Azure VM, it will backup to local storage of Azure VM and then backs up to the recovery services vault.
Kindly check the reference link - https://learn.microsoft.com/en-us/azure/backup/backup-support-matrix to better understand how these backups work.
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