Through Azure AD Conditional Access, we can define and enforce policies regarding access to its cloud resources.
Users who do not comply or are blocked with the conditional access policies defined will get the below error message after login.
The Conditional Access works seamlessly for user accounts.
Say e.g. we have the following policy defined, which applies to all users on the Common Data Service app.
Blocking access from any location or device platform.
Now if a user tries to access Dynamics 365 App, after login he gets the below message.
Now we have the following application user registered which has appropriate security roles assigned.
Now if we try to consume CRM / DataVerse Web API through the application user – client credentials, we can see it working without any exception
If we check the Microsoft Docs, it mentions all user accounts but not service principals.
Check the below link as well
In case if we are using the ROPC (Resource Owner Password Credential) grant type, we will get the below exception there as we are using an user account (UserPasswordCredential)
More on consuming Dataverse / Dynamics 365 Web API
Hope it helps..