Hello @IT.Admin,
This issue may occur if MFA is enabled through Per-user MFA or if your Conditional Access policy does not exclude the Microsoft Azure Windows Virtual Machine Sign-in application. I recommend verifying how MFA is enabled on your account. If it is enabled via Per-user MFA, please disable it. If it is enforced through a Conditional Access policy, make sure the application is excluded.
If MFA is enabled through security defaults and your account has the Global Administrator role assigned, try signing in with a non-admin user to see if the issue persists.
More details can be found here: Azure AD sign-in requirements for Windows VMs
If you still face the same issue after these checks, please review the requirements on the base machine from which you are initiating the RDP connection:
Remote connections to VMs joined to Microsoft Entra ID are only allowed from Windows 10 or later PCs that are Microsoft Entra registered (minimum build 20H1), Microsoft Entra joined, or Microsoft Entra hybrid joined to the same directory as the VM.