Cannot Add "Active Directory - Password" as Linked Server into my SSMS
First, you need to use the new Microsoft OLEDB Driver for SQL Server, aka &quot;MSOLEDBSQL&quot;, not the old Microsoft OLEDB Provider for SQL Server, aka &quot;SQLOLEDB&quot;.
The old driver doens't support Azure Active Directory Authentication.
Second you have to set the &quot;Authentication&quot; connection string keyword:

Then when you map the login using AAD credentials, the driver will interpret them correctly, and not try to use SQL Auth.

Or in script form:
USE [master]
EXEC master.dbo.sp_dropserver @server=N'AZURE', @droplogins='droplogins'
GO
EXEC master.dbo.sp_addlinkedserver @server = N'AZURE', @srvproduct=N'', @provider=N'MSOLEDBSQL', @datasrc=N'xxxxxxx.database.windows.net', @provstr=N'Authentication=ActiveDirectoryPassword'

GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'collation compatible', @optvalue=N'true'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'data access', @optvalue=N'true'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'dist', @optvalue=N'false'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'pub', @optvalue=N'false'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'rpc', @optvalue=N'false'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'rpc out', @optvalue=N'true'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'sub', @optvalue=N'false'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'connect timeout', @optvalue=N'0'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'collation name', @optvalue=null
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'lazy schema validation', @optvalue=N'false'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'query timeout', @optvalue=N'0'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'use remote collation', @optvalue=N'true'
GO
EXEC master.dbo.sp_serveroption @server=N'AZURE', @optname=N'remote proc transaction promotion', @optvalue=N'true'
GO
USE [master]
GO
EXEC master.dbo.sp_addlinkedsrvlogin @rmtsrvname = N'AZURE', @locallogin = NULL , @useself = N'False', @rmtuser = N'xxxxxxx@xxxxxxx.onmicrosoft.com', @rmtpassword = N'xxxxxxxxx'
GO
exec ('select 1 a') at AZURE