To use Azure identity authentication, follow these steps:
Provision an Azure Active Directory administrator for your
server on the Azure portal, if not already done : This is an
important step as for adding Azure data factory's managed
identity as a user in SQL, an Azure AD account having at
least "ALTER ANY USER" permission is required.
If 2nd step is performed using a SQL Authenticated account,
the SQL command will return error.
Create contained database users for the Azure Data Factory
managed identity.Connect to the database from or to which
you want to copy data by using tools like SQL Server
Management Studio, with an Azure AD identity that has at least
ALTER ANY USER permission. Run the following T-SQL
CREATE USER [your Data Factory name] FROM EXTERNAL PROVIDER
Grant the Data Factory managed identity needed permissions as
you normally do for SQL users and others. Run the following
ALTER ROLE [role name] ADD MEMBER [your Data Factory name]
Refer this link for demo.