Microsoft Account Errors

How to Create Microsoft 365 Users with a Federated Domain

Maira Mehtab Sep 27, 2026 869 views

Question details

The user needs to create new Microsoft 365 user accounts using a federated domain but is unable to do so through the cloud admin portals.

Product: Microsoft 365 / Microsoft Entra ID
Device & OS: not provided
Scenario: Creating new user accounts under a federated domain for an organization's Microsoft 365 tenant.
Observed behavior: The federated domain is unavailable in the Microsoft 365 admin center, and Microsoft Entra ID displays an error stating that a SourceAnchor is required to create a federated user.

Before you start

Ensure you have administrative access to your on-premises Active Directory and Microsoft Entra Connect server, as federated identities must be managed locally.

Solution 1Recommended

Create Federated Users On-Premises and Sync via Entra Connect

Federated users cannot be created directly in cloud portals. You must create them in your local Active Directory and sync them to Microsoft 365.

Microsoft 365 and Microsoft Entra ID do not allow the direct creation of federated users in their web portals because these accounts rely on on-premises authentication. You must generate the accounts locally so the SourceAnchor attribute can be established and synced.

Open Active Directory Users and Computers

Create the New User

Create the new user account, ensuring you assign the correct federated UPN suffix that corresponds to your Microsoft 365 domain.

Run Directory Synchronization

Open Microsoft Entra Connect on your sync server and force a directory synchronization, or wait for the next scheduled sync cycle to run automatically.

Verify in Microsoft 365 Admin Center

Once the synchronization is complete, log into the Microsoft 365 admin center to verify that the new federated user appears in the Active Users list.

Default Domain Limitation: A federated domain cannot be configured as the default domain in Microsoft 365. You must use a standard managed domain as your tenant's default.

Solution 2

Contact Your Reseller for Federation Management

If your Microsoft 365 licenses and federation were configured by a third-party reseller, you must coordinate with them before making structural changes.

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Frequently Asked Questions

Why can't I create a federated user directly in the Microsoft 365 admin center?

Cloud portals like Microsoft 365 and Microsoft Entra ID do not support direct creation of federated users because authentication is handled locally. These accounts must be created in your on-premises Active Directory and synchronized to the cloud.

What does the 'SourceAnchor is required' error mean in Microsoft Entra ID?

The SourceAnchor is an immutable attribute used by Microsoft Entra Connect to uniquely identify a user object between your on-premises Active Directory and Microsoft Entra ID. The error indicates the user must be synced from your local AD to generate this attribute.

Can I set a federated domain as my default Microsoft 365 domain?

No, Microsoft 365 does not allow a federated domain to be configured as the default domain for your tenant. You must use a standard managed domain (like your .onmicrosoft.com domain or a managed custom domain) as the default.

What should I do if a reseller set up my federated domain?

If a third-party reseller configured your federation, you must contact them before attempting to modify or remove the federation settings, especially if you are preparing to migrate your licensing or services away from them.

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