diff --git a/cluster-autoscaler/cloudprovider/azure/azure_scale_set_instance_cache.go b/cluster-autoscaler/cloudprovider/azure/azure_scale_set_instance_cache.go
index e186e1cf666b..0b58a36e57e5 100644
--- a/cluster-autoscaler/cloudprovider/azure/azure_scale_set_instance_cache.go
+++ b/cluster-autoscaler/cloudprovider/azure/azure_scale_set_instance_cache.go
@@ -251,6 +251,7 @@ func (scaleSet *ScaleSet) instanceStatusFromVM(vm *compute.VirtualMachineScaleSe
 	if scaleSet.enableDetailedCSEMessage && vm.InstanceView != nil {
 		if err, failed := scaleSet.cseErrors(vm.InstanceView.Extensions); failed {
 			klog.V(3).Infof("VM %s reports CSE failure: %v, with provisioning state %s, power state %s", to.String(vm.ID), err, to.String(vm.ProvisioningState), powerState)
+			status.State = cloudprovider.InstanceCreating
 			errorInfo := &cloudprovider.InstanceErrorInfo{
 				ErrorClass:   cloudprovider.OtherErrorClass,
 				ErrorCode:    vmssExtensionProvisioningFailed,