Examine the Azure VM to determine if it has enough RAM to support the capacity of SCCM Primary Site server and distribution point. If the RAM needs to be increased then resize the Azure VM to the desired size taking into consideration the VM series which will support the change.
You will also need to add 1TB of disk space to house the content of new distribution point. You can follow the same steps for creating a distribution point on an on-premises server and specify the drive letter allocated for the new drive so that SCCM can store the content of the new distribution point there.
After creating the distribution point, distribute the content of the packages assigned to the on-premises distribution point to the new SCCM distribution point hosted on the Azure VM.