This article explains a potential cause when the following error is received while following the steps in Configure Microsoft 365 Exchange Online as External SMTP Email Provider at the Send a test email step.

Error sending email: Access is denied. Check credentials and try again.

• Microsoft 365 (M365)
• External SMTP
• Access Denied

Ensure that the Microsoft Graph Mail.send permission is set as an Application permission and not a Delegated permission.

• In Step 5 of the document Configure Microsoft 365 Exchange Online as External SMTP Email Provider, Add the Mail.Send permission by selecting Add a permission > Microsoft Graph > Application permissions selector:
  • After selecting Microsoft Graph, ensure that Application permissions is selected before selecting Mail.send.

• Ensure a 365 Admin grants admin consent to the application.