The goal is to use a contained database user for secure access from VM1 to SQL1. In Azure SQL, a contained database user can be mapped to an Azure Active Directory (Azure AD) principal. To achieve this, the connecting resource, VM1, must have an identity in Azure AD. Enabling a managed identity for VM1 creates this required identity. Once the managed identity is enabled, you can create a contained user in the SQL database that represents the VM's identity. The application on VM1 can then authenticate to the SQL database using its managed identity, eliminating the need to store and manage credentials like passwords or secrets.

B. Creating a secret in KV1 is for storing credentials, which is what managed identities are designed to replace. This option does not use a contained database user based on an Azure AD identity.
C. A service endpoint secures network traffic between a virtual network and the SQL server but does not handle authentication, which is the core requirement of the question.
D. Creating a key in KV1 is for cryptographic operations like encryption and signing, not for authenticating a VM to an Azure SQL database.

1. Microsoft Docs

"Tutorial: Use a Windows VM system-assigned managed identity to access Azure SQL": This official tutorial explicitly states that the first step to grant a VM access to Azure SQL using its identity is to enable a managed identity on the VM. It then shows how to create a contained user in the database from this identity using the CREATE USER [your-VM-name] FROM EXTERNAL PROVIDER command.

Reference: See the "Enable a system-assigned managed identity on a Windows VM" and "Create a contained user in Azure SQL Database" sections.

2. Microsoft Docs

"What are managed identities for Azure resources?": This document explains that managed identities provide Azure services with an automatically managed identity in Azure AD. It lists Azure SQL Database as a service that supports Azure AD authentication

which can be used with managed identities to connect without credentials in code.

Reference: See the "Introduction" and "Which Azure services support managed identities?" sections.

3. Microsoft Docs

"Configure and manage Azure AD authentication with Azure SQL": This document details how to use Azure AD for authentication with Azure SQL. It clarifies that principals like managed identities can be used to create database users (CREATE USER ... FROM EXTERNAL PROVIDER)

which is the mechanism for contained database users based on Azure AD.

Reference: See the "Azure AD authentication methods" and "Create contained users mapped to Azure AD identities" sections.