An Azure service that is used to provision Windows and Linux virtual machines.
Based on above command you are trying to specify a Disk Encryption Set to be used for encrypting the OS disk during Virtual Machine creation process as the error indicates the change is not allowed via Virtual Machine.
First create a VM and then later update an encryption on the disk itself with DES.
az disk update --name <DiskName> --resource-group <ResourceGroupName> --disk-encryption-set
https://learn.microsoft.com/en-us/cli/azure/disk?view=azure-cli-latest#az-disk-update
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