diff --git a/azure/services/virtualmachines/virtualmachines.go b/azure/services/virtualmachines/virtualmachines.go
index dcf2633f40d..fea3ae256d5 100644
--- a/azure/services/virtualmachines/virtualmachines.go
+++ b/azure/services/virtualmachines/virtualmachines.go
@@ -171,7 +171,7 @@ func (s *Service) checkUserAssignedIdentities(specIdentities []infrav1.UserAssig
 
 	// Check if the expected identities are present in the vm.
 	for _, expectedIdentity := range specIdentities {
-		_, exists := actualMap[expectedIdentity.ProviderID]
+		_, exists := actualMap[strings.TrimPrefix(expectedIdentity.ProviderID, azureutil.ProviderIDPrefix)]
 		if !exists {
 			s.Scope.SetConditionFalse(infrav1.VMIdentitiesReadyCondition, infrav1.UserAssignedIdentityMissingReason, clusterv1.ConditionSeverityWarning, vmMissingUAI+expectedIdentity.ProviderID)
 			return
diff --git a/azure/services/virtualmachines/virtualmachines_test.go b/azure/services/virtualmachines/virtualmachines_test.go
index a3981683afe..2ee963aa8f0 100644
--- a/azure/services/virtualmachines/virtualmachines_test.go
+++ b/azure/services/virtualmachines/virtualmachines_test.go
@@ -38,6 +38,7 @@ import (
 	"sigs.k8s.io/cluster-api-provider-azure/azure/services/publicips"
 	"sigs.k8s.io/cluster-api-provider-azure/azure/services/virtualmachines/mock_virtualmachines"
 	gomockinternal "sigs.k8s.io/cluster-api-provider-azure/internal/test/matchers/gomock"
+	azureutil "sigs.k8s.io/cluster-api-provider-azure/util/azure"
 	"sigs.k8s.io/cluster-api-provider-azure/util/reconciler"
 )
 
@@ -113,10 +114,16 @@ var (
 		},
 	}
 	fakeUserAssignedIdentity = infrav1.UserAssignedIdentity{
-		ProviderID: "azure:///subscriptions/123/resourceGroups/test-rg/providers/Microsoft.ManagedIdentity/userAssignedIdentities/fake-provider-id",
+		ProviderID: "/subscriptions/123/resourceGroups/test-rg/providers/Microsoft.ManagedIdentity/userAssignedIdentities/fake-provider-id",
+	}
+	fakeUserAssignedIdentityWithPrefix = infrav1.UserAssignedIdentity{
+		ProviderID: azureutil.ProviderIDPrefix + fakeUserAssignedIdentity.ProviderID,
 	}
 	fakeUserAssignedIdentity2 = infrav1.UserAssignedIdentity{
-		ProviderID: "azure:///subscriptions/123/resourceGroups/test-rg/providers/Microsoft.ManagedIdentity/userAssignedIdentities/fake-provider-id-2",
+		ProviderID: fakeUserAssignedIdentity.ProviderID + "-2",
+	}
+	fakeUserAssignedIdentity2WithPrefix = infrav1.UserAssignedIdentity{
+		ProviderID: azureutil.ProviderIDPrefix + fakeUserAssignedIdentity2.ProviderID,
 	}
 )
 
@@ -324,14 +331,14 @@ func TestCheckUserAssignedIdentities(t *testing.T) {
 		},
 		{
 			name:             "matching user assigned identities",
-			specIdentities:   []infrav1.UserAssignedIdentity{fakeUserAssignedIdentity},
+			specIdentities:   []infrav1.UserAssignedIdentity{fakeUserAssignedIdentityWithPrefix},
 			actualIdentities: []infrav1.UserAssignedIdentity{fakeUserAssignedIdentity},
 		},
 		{
 			name:             "less user assigned identities than expected",
-			specIdentities:   []infrav1.UserAssignedIdentity{fakeUserAssignedIdentity, fakeUserAssignedIdentity2},
+			specIdentities:   []infrav1.UserAssignedIdentity{fakeUserAssignedIdentity, fakeUserAssignedIdentity2WithPrefix},
 			actualIdentities: []infrav1.UserAssignedIdentity{fakeUserAssignedIdentity},
-			expectedKey:      fakeUserAssignedIdentity2.ProviderID,
+			expectedKey:      fakeUserAssignedIdentity2WithPrefix.ProviderID,
 		},
 		{
 			name:             "more user assigned identities than expected",
diff --git a/docs/book/src/topics/workload-identity.md b/docs/book/src/topics/workload-identity.md
index 20beb355d1d..c6cbc3e6e9e 100644
--- a/docs/book/src/topics/workload-identity.md
+++ b/docs/book/src/topics/workload-identity.md
@@ -142,7 +142,7 @@ to give the identity Contributor access to the Azure subscription where the work
   ```yaml
   identity: UserAssigned
   userAssignedIdentities:
-  - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${RESOURCE_GROUP}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_ASSIGNED_IDENTITY_NAME}
+  - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${RESOURCE_GROUP}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_ASSIGNED_IDENTITY_NAME}
   ```
 
   A sample `AzureMachineTemplate` after the edit should look like the below:
@@ -162,7 +162,7 @@ to give the identity Contributor access to the Azure subscription where the work
         sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
         identity: UserAssigned
         userAssignedIdentities:
-        - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${RESOURCE_GROUP}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_ASSIGNED_IDENTITY_NAME}
+        - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${RESOURCE_GROUP}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_ASSIGNED_IDENTITY_NAME}
         vmSize: ${AZURE_NODE_MACHINE_TYPE}
   ```
 
diff --git a/templates/test/ci/cluster-template-prow-apiserver-ilb.yaml b/templates/test/ci/cluster-template-prow-apiserver-ilb.yaml
index 2850e215e75..07be775c53e 100644
--- a/templates/test/ci/cluster-template-prow-apiserver-ilb.yaml
+++ b/templates/test/ci/cluster-template-prow-apiserver-ilb.yaml
@@ -149,7 +149,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -190,7 +190,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/ci/cluster-template-prow-ci-version-dra.yaml b/templates/test/ci/cluster-template-prow-ci-version-dra.yaml
index 8bd68f5375f..a7bc3a3e7b6 100644
--- a/templates/test/ci/cluster-template-prow-ci-version-dra.yaml
+++ b/templates/test/ci/cluster-template-prow-ci-version-dra.yaml
@@ -325,7 +325,7 @@ spec:
       version: "2.1"
     vmSize: ${AZURE_NODE_MACHINE_TYPE}
   userAssignedIdentities:
-  - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+  - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
 kind: KubeadmConfig
@@ -517,7 +517,7 @@ spec:
     sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
     vmSize: ${AZURE_NODE_MACHINE_TYPE}
   userAssignedIdentities:
-  - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+  - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
 kind: KubeadmConfig
diff --git a/templates/test/ci/cluster-template-prow-ci-version-dual-stack.yaml b/templates/test/ci/cluster-template-prow-ci-version-dual-stack.yaml
index b577edc3a97..ed5429c7a05 100644
--- a/templates/test/ci/cluster-template-prow-ci-version-dual-stack.yaml
+++ b/templates/test/ci/cluster-template-prow-ci-version-dual-stack.yaml
@@ -269,7 +269,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -321,7 +321,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmExtensions:
       - name: CustomScript
         protectedSettings:
diff --git a/templates/test/ci/cluster-template-prow-ci-version-ipv6.yaml b/templates/test/ci/cluster-template-prow-ci-version-ipv6.yaml
index ef04ec3b9ed..b63c95580a7 100644
--- a/templates/test/ci/cluster-template-prow-ci-version-ipv6.yaml
+++ b/templates/test/ci/cluster-template-prow-ci-version-ipv6.yaml
@@ -276,7 +276,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -328,7 +328,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmExtensions:
       - name: CustomScript
         protectedSettings:
diff --git a/templates/test/ci/cluster-template-prow-ci-version-md-and-mp.yaml b/templates/test/ci/cluster-template-prow-ci-version-md-and-mp.yaml
index 417d4c73758..f729a86035b 100644
--- a/templates/test/ci/cluster-template-prow-ci-version-md-and-mp.yaml
+++ b/templates/test/ci/cluster-template-prow-ci-version-md-and-mp.yaml
@@ -247,7 +247,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -298,7 +298,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmExtensions:
       - name: CustomScript
         protectedSettings:
@@ -481,7 +481,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
@@ -1457,7 +1457,7 @@ spec:
     sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
     vmSize: ${AZURE_NODE_MACHINE_TYPE}
   userAssignedIdentities:
-  - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+  - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
 kind: KubeadmConfig
@@ -1625,7 +1625,7 @@ spec:
     sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
     vmSize: ${AZURE_NODE_MACHINE_TYPE}
   userAssignedIdentities:
-  - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+  - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
 kind: KubeadmConfig
diff --git a/templates/test/ci/cluster-template-prow-ci-version.yaml b/templates/test/ci/cluster-template-prow-ci-version.yaml
index 7e5c635e02b..8c5cd136101 100644
--- a/templates/test/ci/cluster-template-prow-ci-version.yaml
+++ b/templates/test/ci/cluster-template-prow-ci-version.yaml
@@ -247,7 +247,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -298,7 +298,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmExtensions:
       - name: CustomScript
         protectedSettings:
@@ -481,7 +481,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/ci/cluster-template-prow-custom-vnet.yaml b/templates/test/ci/cluster-template-prow-custom-vnet.yaml
index 01d63d5555b..57118fb19d8 100644
--- a/templates/test/ci/cluster-template-prow-custom-vnet.yaml
+++ b/templates/test/ci/cluster-template-prow-custom-vnet.yaml
@@ -142,7 +142,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -185,7 +185,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/ci/cluster-template-prow-dual-stack.yaml b/templates/test/ci/cluster-template-prow-dual-stack.yaml
index 2d8a219223f..7902e52d2ad 100644
--- a/templates/test/ci/cluster-template-prow-dual-stack.yaml
+++ b/templates/test/ci/cluster-template-prow-dual-stack.yaml
@@ -157,7 +157,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: infrastructure.cluster.x-k8s.io/v1beta1
@@ -214,7 +214,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/ci/cluster-template-prow-edgezone.yaml b/templates/test/ci/cluster-template-prow-edgezone.yaml
index df4919322c4..6a20ddd11d1 100644
--- a/templates/test/ci/cluster-template-prow-edgezone.yaml
+++ b/templates/test/ci/cluster-template-prow-edgezone.yaml
@@ -142,7 +142,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_EDGEZONE_CONTROL_PLANE_MACHINE_TYPE:=Standard_DS2_v2}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -184,7 +184,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_EDGEZONE_NODE_MACHINE_TYPE:=Standard_DS4_v2}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/ci/cluster-template-prow-machine-pool-ci-version.yaml b/templates/test/ci/cluster-template-prow-machine-pool-ci-version.yaml
index f104cf33f37..1b87722a7ce 100644
--- a/templates/test/ci/cluster-template-prow-machine-pool-ci-version.yaml
+++ b/templates/test/ci/cluster-template-prow-machine-pool-ci-version.yaml
@@ -307,7 +307,7 @@ spec:
       version: "2.1"
     vmSize: ${AZURE_NODE_MACHINE_TYPE}
   userAssignedIdentities:
-  - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+  - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
 kind: KubeadmConfig
@@ -488,7 +488,7 @@ spec:
     sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
     vmSize: ${AZURE_NODE_MACHINE_TYPE}
   userAssignedIdentities:
-  - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+  - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
 kind: KubeadmConfig
diff --git a/templates/test/ci/cluster-template-prow-private.yaml b/templates/test/ci/cluster-template-prow-private.yaml
index 66513ca8663..5b4ebd66862 100644
--- a/templates/test/ci/cluster-template-prow-private.yaml
+++ b/templates/test/ci/cluster-template-prow-private.yaml
@@ -171,7 +171,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -212,7 +212,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/ci/cluster-template-prow-spot.yaml b/templates/test/ci/cluster-template-prow-spot.yaml
index 63f0bf1d4ee..c43c6077bdb 100644
--- a/templates/test/ci/cluster-template-prow-spot.yaml
+++ b/templates/test/ci/cluster-template-prow-spot.yaml
@@ -135,7 +135,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -181,7 +181,7 @@ spec:
         maxPrice: 1000
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: Standard_B2s_v2
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/ci/cluster-template-prow.yaml b/templates/test/ci/cluster-template-prow.yaml
index cb332ffd199..0b9a484e177 100644
--- a/templates/test/ci/cluster-template-prow.yaml
+++ b/templates/test/ci/cluster-template-prow.yaml
@@ -186,7 +186,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmExtensions:
       - name: CustomScript
         protectedSettings:
@@ -266,7 +266,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/ci/patches/uami-control-plane.yaml b/templates/test/ci/patches/uami-control-plane.yaml
index a81bcfcb097..e712950a0d9 100644
--- a/templates/test/ci/patches/uami-control-plane.yaml
+++ b/templates/test/ci/patches/uami-control-plane.yaml
@@ -8,4 +8,4 @@ spec:
     spec:
       identity: UserAssigned
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
diff --git a/templates/test/ci/patches/uami-md-0.yaml b/templates/test/ci/patches/uami-md-0.yaml
index f1ddd21db75..d731326e08f 100644
--- a/templates/test/ci/patches/uami-md-0.yaml
+++ b/templates/test/ci/patches/uami-md-0.yaml
@@ -8,4 +8,4 @@ spec:
     spec:
       identity: UserAssigned
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
diff --git a/templates/test/ci/patches/uami-mp-0.yaml b/templates/test/ci/patches/uami-mp-0.yaml
index 035888c7959..b762a99206b 100644
--- a/templates/test/ci/patches/uami-mp-0.yaml
+++ b/templates/test/ci/patches/uami-mp-0.yaml
@@ -6,4 +6,4 @@ metadata:
 spec:
   identity: UserAssigned
   userAssignedIdentities:
-  - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+  - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
diff --git a/templates/test/ci/patches/windows-server-version.yaml b/templates/test/ci/patches/windows-server-version.yaml
index 0c66811a88b..8088e556be8 100644
--- a/templates/test/ci/patches/windows-server-version.yaml
+++ b/templates/test/ci/patches/windows-server-version.yaml
@@ -10,4 +10,4 @@ spec:
     spec:
       identity: UserAssigned
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
diff --git a/templates/test/ci/prow-ci-version/patches/machine-deployment-ci-version-control-plane.yaml b/templates/test/ci/prow-ci-version/patches/machine-deployment-ci-version-control-plane.yaml
index 8d684ecd158..6d70324510c 100644
--- a/templates/test/ci/prow-ci-version/patches/machine-deployment-ci-version-control-plane.yaml
+++ b/templates/test/ci/prow-ci-version/patches/machine-deployment-ci-version-control-plane.yaml
@@ -22,5 +22,5 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
diff --git a/templates/test/ci/prow-ci-version/patches/machine-deployment-ci-version-windows.yaml b/templates/test/ci/prow-ci-version/patches/machine-deployment-ci-version-windows.yaml
index a0e8936019e..fae072a81cf 100644
--- a/templates/test/ci/prow-ci-version/patches/machine-deployment-ci-version-windows.yaml
+++ b/templates/test/ci/prow-ci-version/patches/machine-deployment-ci-version-windows.yaml
@@ -15,4 +15,4 @@ spec:
           version: "latest"
       identity: UserAssigned
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
diff --git a/templates/test/ci/prow-dual-stack/patches/azure-machine-template-control-plane.yaml b/templates/test/ci/prow-dual-stack/patches/azure-machine-template-control-plane.yaml
index a81bcfcb097..e712950a0d9 100644
--- a/templates/test/ci/prow-dual-stack/patches/azure-machine-template-control-plane.yaml
+++ b/templates/test/ci/prow-dual-stack/patches/azure-machine-template-control-plane.yaml
@@ -8,4 +8,4 @@ spec:
     spec:
       identity: UserAssigned
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
diff --git a/templates/test/ci/prow-dual-stack/patches/azure-machine-template.yaml b/templates/test/ci/prow-dual-stack/patches/azure-machine-template.yaml
index f1ddd21db75..d731326e08f 100644
--- a/templates/test/ci/prow-dual-stack/patches/azure-machine-template.yaml
+++ b/templates/test/ci/prow-dual-stack/patches/azure-machine-template.yaml
@@ -8,4 +8,4 @@ spec:
     spec:
       identity: UserAssigned
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
diff --git a/templates/test/ci/prow-machine-pool-ci-version/patches/machine-pool-ci-version-windows.yaml b/templates/test/ci/prow-machine-pool-ci-version/patches/machine-pool-ci-version-windows.yaml
index 07beec81a4c..a8fdad071e2 100644
--- a/templates/test/ci/prow-machine-pool-ci-version/patches/machine-pool-ci-version-windows.yaml
+++ b/templates/test/ci/prow-machine-pool-ci-version/patches/machine-pool-ci-version-windows.yaml
@@ -15,4 +15,4 @@ spec:
         version: latest
   identity: UserAssigned
   userAssignedIdentities:
-    - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+    - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
diff --git a/templates/test/dev/cluster-template-custom-builds-load-dra.yaml b/templates/test/dev/cluster-template-custom-builds-load-dra.yaml
index 4d938ceb3be..456febe9de7 100644
--- a/templates/test/dev/cluster-template-custom-builds-load-dra.yaml
+++ b/templates/test/dev/cluster-template-custom-builds-load-dra.yaml
@@ -260,7 +260,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -311,7 +311,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmExtensions:
       - name: CustomScript
         protectedSettings:
@@ -462,7 +462,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/dev/cluster-template-custom-builds-load.yaml b/templates/test/dev/cluster-template-custom-builds-load.yaml
index 5cbcea5475b..eb789f899ea 100644
--- a/templates/test/dev/cluster-template-custom-builds-load.yaml
+++ b/templates/test/dev/cluster-template-custom-builds-load.yaml
@@ -245,7 +245,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -296,7 +296,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmExtensions:
       - name: CustomScript
         protectedSettings:
@@ -436,7 +436,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/dev/cluster-template-custom-builds.yaml b/templates/test/dev/cluster-template-custom-builds.yaml
index 5abb71a8882..1e1494f83cf 100644
--- a/templates/test/dev/cluster-template-custom-builds.yaml
+++ b/templates/test/dev/cluster-template-custom-builds.yaml
@@ -239,7 +239,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -290,7 +290,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmExtensions:
       - name: CustomScript
         protectedSettings:
@@ -430,7 +430,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/templates/test/dev/custom-builds/patches/machine-deployment-pr-version-windows.yaml b/templates/test/dev/custom-builds/patches/machine-deployment-pr-version-windows.yaml
index c153570d2eb..bd6e7ba1498 100644
--- a/templates/test/dev/custom-builds/patches/machine-deployment-pr-version-windows.yaml
+++ b/templates/test/dev/custom-builds/patches/machine-deployment-pr-version-windows.yaml
@@ -8,7 +8,7 @@ spec:
     spec:
       identity: UserAssigned
       userAssignedIdentities:
-        - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+        - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       image:
         # we use the latest image as a workaround there is no published marketplace image for k8s CI versions.
         # latest binaries and images will get replaced to the desired version by the script above.
diff --git a/templates/test/dev/custom-builds/patches/machine-deployment-pr-version.yaml b/templates/test/dev/custom-builds/patches/machine-deployment-pr-version.yaml
index 60e367449c6..6b19f513702 100644
--- a/templates/test/dev/custom-builds/patches/machine-deployment-pr-version.yaml
+++ b/templates/test/dev/custom-builds/patches/machine-deployment-pr-version.yaml
@@ -7,7 +7,7 @@ spec:
     spec:
       identity: UserAssigned
       userAssignedIdentities:
-        - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+        - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       image:
         # we use the latest image as a workaround there is no published marketplace image for k8s CI versions.
         # latest binaries and images will get replaced to the desired version by the script above.
@@ -26,7 +26,7 @@ spec:
     spec:
       identity: UserAssigned
       userAssignedIdentities:
-        - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
+        - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY}
       image:
         # we use the latest image as a workaround there is no published marketplace image for k8s CI versions.
         # latest binaries and images will get replaced to the desired version by the script above.
diff --git a/test/e2e/data/infrastructure-azure/v1.18.5/cluster-template-prow-machine-and-machine-pool.yaml b/test/e2e/data/infrastructure-azure/v1.18.5/cluster-template-prow-machine-and-machine-pool.yaml
index 3429f5b6609..259d371fcc4 100644
--- a/test/e2e/data/infrastructure-azure/v1.18.5/cluster-template-prow-machine-and-machine-pool.yaml
+++ b/test/e2e/data/infrastructure-azure/v1.18.5/cluster-template-prow-machine-and-machine-pool.yaml
@@ -160,7 +160,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -316,7 +316,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/test/e2e/data/infrastructure-azure/v1.18.5/cluster-template-prow.yaml b/test/e2e/data/infrastructure-azure/v1.18.5/cluster-template-prow.yaml
index 4d12f772869..4e3057a22d7 100644
--- a/test/e2e/data/infrastructure-azure/v1.18.5/cluster-template-prow.yaml
+++ b/test/e2e/data/infrastructure-azure/v1.18.5/cluster-template-prow.yaml
@@ -138,7 +138,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -258,7 +258,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/test/e2e/data/infrastructure-azure/v1.19.4/cluster-template-prow-machine-and-machine-pool.yaml b/test/e2e/data/infrastructure-azure/v1.19.4/cluster-template-prow-machine-and-machine-pool.yaml
index 3429f5b6609..259d371fcc4 100644
--- a/test/e2e/data/infrastructure-azure/v1.19.4/cluster-template-prow-machine-and-machine-pool.yaml
+++ b/test/e2e/data/infrastructure-azure/v1.19.4/cluster-template-prow-machine-and-machine-pool.yaml
@@ -160,7 +160,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -316,7 +316,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/test/e2e/data/infrastructure-azure/v1.19.4/cluster-template-prow.yaml b/test/e2e/data/infrastructure-azure/v1.19.4/cluster-template-prow.yaml
index 4d12f772869..4e3057a22d7 100644
--- a/test/e2e/data/infrastructure-azure/v1.19.4/cluster-template-prow.yaml
+++ b/test/e2e/data/infrastructure-azure/v1.19.4/cluster-template-prow.yaml
@@ -138,7 +138,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: cluster.x-k8s.io/v1beta1
@@ -258,7 +258,7 @@ spec:
         osType: Windows
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
 ---
 apiVersion: bootstrap.cluster.x-k8s.io/v1beta1
diff --git a/test/e2e/data/infrastructure-azure/v1beta1/cluster-template-machine-and-machine-pool.yaml b/test/e2e/data/infrastructure-azure/v1beta1/cluster-template-machine-and-machine-pool.yaml
index b359745aaca..229b4e594dc 100644
--- a/test/e2e/data/infrastructure-azure/v1beta1/cluster-template-machine-and-machine-pool.yaml
+++ b/test/e2e/data/infrastructure-azure/v1beta1/cluster-template-machine-and-machine-pool.yaml
@@ -361,7 +361,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: infrastructure.cluster.x-k8s.io/v1beta1
@@ -380,5 +380,5 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}
diff --git a/test/e2e/data/infrastructure-azure/v1beta1/cluster-template.yaml b/test/e2e/data/infrastructure-azure/v1beta1/cluster-template.yaml
index 6a2d55cb91b..152bc22ba40 100644
--- a/test/e2e/data/infrastructure-azure/v1beta1/cluster-template.yaml
+++ b/test/e2e/data/infrastructure-azure/v1beta1/cluster-template.yaml
@@ -303,7 +303,7 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_CONTROL_PLANE_MACHINE_TYPE}
 ---
 apiVersion: infrastructure.cluster.x-k8s.io/v1beta1
@@ -322,5 +322,5 @@ spec:
         osType: Linux
       sshPublicKey: ${AZURE_SSH_PUBLIC_KEY_B64:=""}
       userAssignedIdentities:
-      - providerID: /subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
+      - providerID: azure:///subscriptions/${AZURE_SUBSCRIPTION_ID}/resourceGroups/${CI_RG:=capz-ci}/providers/Microsoft.ManagedIdentity/userAssignedIdentities/${USER_IDENTITY:=cloud-provider-user-identity}
       vmSize: ${AZURE_NODE_MACHINE_TYPE}