To expand an Azure OS disk, the VM must be in a Deallocated state, which requires stopping the VM. While some data disks can be resized "live," the OS disk typically requires the VM to be stopped to prevent file system corruption and allow the Azure fabric to reallocate the underlying storage resources. Once the VM is stopped, you update the disk capacity in the Azure Portal or via CLI/PowerShell. After the hardware-level resize is complete, you Start VM1. Finally, because Azure only expands the physical capacity of the disk, you must log into Windows and Resize volume C (extend the partition) using Disk Management or PowerShell to utilize the new unallocated space.

Microsoft Learn (Official Documentation): "Expand virtual hard disks on a Windows VM," Section: Expand an OS disk. (Updated 2024/2025). Specifically identifies that for most VM sizes, the VM must be stopped to resize the OS disk.

Microsoft Azure Documentation: "Step-by-step: How to expand the OS drive of a Windows VM in Azure." Paragraph 2: "Deallocate the VM to ensure the disk is not in use during the expansion process."

Microsoft Tech Community - Azure Architecture: "Disk Management in Azure VMs," Section: Extending Volumes. Details the requirement to use 'diskmgmt.msc' or 'Extend-Partition' after the Azure-level resize is finished.

Azure Resource Manager (ARM) API Reference: Microsoft.Compute/disks/write. Outlines the workflow where disk capacity properties are updated while the diskState is Unattached or the VM is Stopped.