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Thank you all for your support and guidance during the investigation.
The failure was confirmed to be unrelated to VMSS orchestration mode, capacity constraints, or backend (CRP) behavior. This was further validated with the Compute Resource Provider (CRP) team, who confirmed that no issues were observed from the service side and that the platform was functioning as expected.
Upon reviewing the debug logs, it was observed that the failure was occurring within Azure CLI during the image alias resolution phase. Specifically, a JSON parsing error (Extra data: line 1 column 4 (char 3)) was triggered before the VM provisioning request could be completed.
For this scenario, the issue was observed when using the image alias "Ubuntu2204", which may have led to inconsistent parsing of the alias metadata within Azure CLI. As a workaround, the image reference was updated to the fully qualified URN "Canonical:0001-com-ubuntu-server-jammy:22_04-lts:latest". Following this change, the command executed successfully, and VM provisioning completed without any errors.
Additionally, we would like to highlight that similar behaviors are being tracked in the Azure CLI GitHub repository:
We recommend monitoring the above threads for further updates or fixes from the Azure CLI team