Hello @Khidir Elsanosi and welcome to Microsoft Q&A.
We took a look in our records and found where someone else got a similar error. They were trying to migrate integration processes from on-prem to the cloud.
SQL PaaS doesn’t support distributed transactions the same way as on-prem.
For leveraging Azure SQL PaaS (as per your current architecture), you would need to develop a custom C# OR .Net app that handles the workflow: https://learn.microsoft.com/en-us/azure/azure-sql/database/elastic-transactions-overview#installation-and-migration
For leveraging SQL Managed Instance, you would need to user SQL Trust Groups, which are in preview: https://learn.microsoft.com/en-us/azure/azure-sql/database/elastic-transactions-overview#transactions-across-multiple-servers-for-azure-sql-managed-instance
Both SQL MI and SQL DB have distributed transactions limitations: https://learn.microsoft.com/en-us/azure/azure-sql/database/elastic-transactions-overview#limitations