Thanks for asking question! Just to double check if you have saved your settings to apply the changes to Azure while adding the applications for “Virtual applications and directories” and restart it once.
You may also try removing the aspNetCore handler and click save by editing the web.config file in this sub directory. You can do it by using kudu console and then clicking the edit button in front of web.config file. As When adding applications to an IIS Site's root application, the root application web.config file should include the section, which adds the ASP.NET Core Module as a handler for the app. Applications added to the root application shouldn't include the section. If you repeat the section in a sub-application's web.config file, you will receive a 500.19 (Internal Server Error) referencing the faulty config file when you attempt to browse the sub-application. Check this official document
Let me know if issue persists.