I came across this issue while working on an Exchange Hybrid deployment. During the testing phase, I successfully migrated mailboxes from Exchange 2010 to Exchange Online. However, when I migrated a mailbox from Exchange 2010 to Exchange 2016, my Outlook client could not connect to its mailbox and would continually prompt for login credentials
Note: On my test client, the Exchange namespaces were all pointing to Exchange 2016.
What was interesting was that the Autodiscover process was working, with the Outlook client successfully retrieving its URL’s, as verified using “Test-Email AutoConfiguration”
This indicated that my outlook client was successfully connecting to the autodiscover virtual directory. My attention turned towards the MAPI virtual directory as I could see 401 errors in the IIS logs.
The solution in my case was to configure the authentication settings via IIS on the MAPI front end and back end virtual directories as follows:
After an IISRESET, my Outlook client connected succesfully