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Dear Cloud_DH,
Thanks for posting in Microsoft community.
Based on your description, we could assign users Read permission for the custom folder to prevent users from creating sub-folder.
Check the following steps and see if they could help:
- Select the folder>click the three vertical dots>click Manage access
2.Scroll down and click Advanced
3.Click Stop Inheriting Permissions
4.Click Check Permission to check whether these users have Edit or higher permission for this custom folder. If they have, please first remove these permissions for them.
5.Click Grant Permissions
6.Enter the users' names/group name and click "SHOW OPTIONS" to assign Read permission.
If the method above doesn't consistent with yours, please post back and let me know, I'll help you figure out.
Thanks for your cooperation, look forward to your reply.
Have a good day.
Sincerely,
Sean Cai | Microsoft Community Moderator
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