Azure Arc Security Risks: Protecting Hybrid Clouds from Script Extension Abuse

Azure Arc, Microsoft’s hybrid cloud management solution, promises flexibility and visibility across environments, but security researchers are increasingly sounding alarms about abuse vectors ripe for attackers. Amid a thriving landscape of distributed workloads, endpoints, and diverse compliance requirements, Azure Arc seeks to simplify governance by extending Azure’s native management, security, and monitoring features well beyond traditional cloud boundaries. Yet this very capability—the enrolling of on-premises or multi-cloud machines under Azure’s umbrella—creates novel attack surfaces and a pressing need for defenders to rethink their trust assumptions.

Understanding Azure Arc: Power and Reach​

At its core, Azure Arc empowers organizations to centrally manage physical and virtual machines, Kubernetes clusters, and data services across on-premises, edge, and public cloud locations. By installing the Azure Arc agent, organizations effectively bridge the isolated governance silos that typically exist in hybrid deployments. This agent allows the registered machine (Windows or Linux) to interact with the Azure Resource Manager and enables resource control through the Azure Portal, PowerShell, or REST API.
Central management, policy enforcement, inventory, and Azure Defender integration—these are the boons Azure Arc brings to hybrid IT. But with reach comes risk. Each enrolled workload is now exposed to Azure-based controls, extensions, and automation tasks that, if misused, can be exploited for persistence, escalation, and covert operations.

The Custom Script Extension: Double-Edged Sword​

Among the most powerful features granted by Arc is the ability to deploy “extensions” to managed machines. Standout among these is the Custom Script Extension (CSE), which lets administrators (or attackers with sufficient rights) execute arbitrary PowerShell or Bash scripts remotely from Azure. Even more concerning, these scripts and supporting files can be staged directly from “fileUris,” pointing to theoretically any reachable web location.
A typical workflow sees the CSE fetch and execute commands—whether routine maintenance or complex configuration changes. However, as detailed in the recent IBM X-Force research, this process introduces numerous avenues for abuse:

• Persistence and Execution: Attackers who compromise Azure Arc credentials or native RBAC permissions can quietly establish persistence on any hybrid machine by deploying malicious scripts—a capability typically monitored only on the endpoint, not via Azure logs.
• File Smuggling: Utilizing the fileUris attribute in CSE deployments enables not just script execution but file transfer, turning the Azure Arc agent into an unexpected data ingress/egress mechanism. Even security teams monitoring traditional web download channels may miss these “approved” channels.
• Covert Operations: By copying staged files outside the monitored plugin directory (e.g., copying to C:\Windows\Temp), attackers can evade static detection methods targeting known extension folders. Subsequent CSEs or alternate tools can invoke these binaries for further compromise or lateral movement.

How CSE Abuse Unfolds​

When a CSE is deployed, files referenced in the fileUris array are downloaded to a dedicated plugin directory (defaulting to C:\Packages\Plugins\Microsoft.Compute.CustomScriptExtension[version]\Downloads[iterator] on Windows). However, if these files are copied elsewhere—say, to C:\Windows\Temp—they persist beyond the life of the CSE, potentially evading automated cleanup and detection routines.
Consider IBM X-Force’s demonstration: a PowerShell script fetched by the CSE downloads two files, “notVirus.exe” and “alsoNotVirus.txt”, moves them to C:\Windows\Temp, and signals success or failure via exit codes. Such chains may appear innocuous, but when combined with elevated privileges—Arc extensions often run as SYSTEM—the risk profile sharply increases.

try {
  Copy-Item -Path "NotVirus.exe" -Destination "C:\Windows\Temp\NotVirus.exe" -Force -ErrorAction Stop
  Copy-Item -Path "AlsoNotVirus.txt" -Destination "C:\Windows\Temp\AlsoNotVirus.txt" -Force -ErrorAction Stop
  if ((Test-Path "C:\Windows\Temp\NotVirus.exe") -and (Test-Path "C:\Windows\Temp\AlsoNotVirus.txt")) {
    exit 10
  } else {
    exit 20
  }
} catch {
  exit 20
}

This level of access—remotely pushing scripts and arbitrary binaries—should be viewed as credentialed remote code execution (RCE), effectively blurring the lines between on-premises and cloud attack surfaces.

The Dark Side: Escalation and Persistence​

Once attackers secure access to Azure Arc (through stolen credentials, misconfigured permissions, or supply-chain weaknesses), the door is open to a host of post-exploitation techniques. The CSE is not the only extension in the arsenal, but it is especially attractive for its flexibility and ease of deployment through Azure’s clean APIs. Key risks include:

1. Privilege Escalation​

If the Azure Arc agent runs under SYSTEM or otherwise privileged contexts (as is default), any executed code inherits these privileges. Attackers who compromise Azure Arc–managed resources can elevate from a standard Azure admin role into full system access on the endpoint—effectively pivoting from cloud compromise to full network breach.

2. Persistence Through Stuck Extensions​

Notably, CSEs aren’t always ephemeral. As detailed in the IBM X-Force research, poorly managed or incomplete extension runs can leave the extension in a “deleting” state indefinitely. If, for example, an invoked payload (such as an HTTPS beacon running under SYSTEM) is never stopped, attempts to remove the CSE may fail silently, with processes stubbornly persisting in the background.
Full remediation, researchers warn, may involve deleting the parent Hybrid Identity object from Azure and reinstalling the Arc agent—a process that, while relatively fast for experts, introduces complexity and brittleness to enterprise playbooks.

3. Lateral Movement and Smuggling​

Azure Arc’s CSE can act as a stealthy file transfer vector. Files dropped via CSE and moved elsewhere can be invoked later by different scripts or actors. This “double stage” approach allows attackers to smuggle tools onto endpoints without triggering conventional web filtering or upload controls, effectively nesting persistence payloads under the radar of both cloud and endpoint detection solutions.

4. Covert Cleanup and Forensics Gaps​

Though deleting a CSE will remove its associated plugin directory and any files not moved, anything copied out prior to deletion will persist. Furthermore, as output from CSE executions isn’t directly recoverable (other than basic exit codes), defenders have sparse logs or artefacts at the cloud layer. This makes incident response and root-cause analysis more challenging, especially in large hybrid estates.

A Defender’s Dilemma: Strengths and Weaknesses​

There’s no denying the power that Azure Arc affords organizations intent on bringing sprawling plants, field stations, or branch offices into central policy and compliance programs. But defenders must reckon with the fact that every extension point is also an intrusion vector. The following strengths and risks are most apparent:

Notable Strengths​

• Unified Policy Control: Azure Arc simplifies compliance adherence, automating patch management, inventory, and configuration enforcement across heterogeneous environments.
• Scale and Flexibility: From a single portal, administrators gain visibility and control over disparate global workloads, reducing operational lag and inconsistency.
• Automation Ecosystem: Rich APIs and tight Azure integration enable powerful DevOps and security automations—vital for large, regulated enterprises.

Critical Risks​

• Over-privileged Agents: Default installation under SYSTEM (or equivalent) grants attackers significant leverage if compromised. Restrict agent privileges where possible.
• API Surface for Abuse: The ability to push extensions or scripts at scale means a single compromised Azure principal can potentially gain persistence everywhere Arc is deployed.
• Detection Gaps: Endpoint monitoring is not always aware of Azure extension activities, particularly if defenders rely too heavily on traditional on-prem logging and AV solutions.
• Complex Recovery: Persistent or orphaned CSEs, especially those in “deleting” limbo, are not easy to remediate and may require time-consuming manual intervention.

Defensive Recommendations: Hardening Hybrid Assets​

Mitigating Azure Arc risks requires a layered, hybrid-aware security strategy—one that expands cloud security best practices to the extended edge. Expert recommendations include:

• Tightly Control Arc Permissions: Employ least-privilege access for any Azure principal allowed to deploy or manage Arc, utilizing just-in-time access (JIT) and RBAC scoping.
• Monitor Extension Deployments: Set alerts on new extension deployments using Azure Activity Logs, and confirm extension executions at the endpoint using EDRs (Endpoint Detection and Response tools).
• Constrain Agent Privileges: Wherever feasible, run Azure Arc agents under service accounts with only the minimum required privileges, not SYSTEM or root.
• Isolate Extension Payloads: Monitor and restrict copying of files from plugin directories to sensitive areas like C:\Windows\Temp. Employ file integrity monitoring and block untrusted code execution from writable folders.
• Automate Cleanup: Build automated scripts or workflows to validate, clean, and re-install orphaned or stuck extensions as part of routine maintenance.
• Review FileUris Usage: Regularly audit extension configurations and fileUris parameters for suspicious or non-standard domains, as these can be indicative of file smuggling or staging.
• Expand Forensics Readiness: Ensure that detailed process and file activity logging is enabled on all managed endpoints, correlating cloud logs with local EDR data for comprehensive visibility.

Looking Forward: Balancing Agility and Risk in Hybrid Cloud​

Azure Arc is emblematic of the hybrid cloud era—aspiring to decomplexify operations but, in so doing, magnifying the need for cross-disciplinary security vigilance. The flexibility of virtualization, remote script execution, and unified management shouldn’t come at the expense of new blind spots for attackers to exploit.
For organizations embracing Arc, the lesson is clear: treat every extension, every agent, and every management channel as a potential intrusion point, not just a convenience. Harden cloud credentials, monitor every change, and assume that hybrid means hybrid risk, not just hybrid management.
Critical insight from watchdog investigations like IBM’s X-Force isn’t just academic—it’s a roadmap for what the next generation of cloud attackers will try. And for security teams on the front lines, knowledge of these attack paths is the best defense.
By staying vigilant, rigorously auditing both cloud and endpoint planes, and refusing to depend solely on inherited controls, organizations can capture the agility of Azure Arc without stumbling into the very persistence and privilege escalation traps it inadvertently enables.

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Source: ibm.com Identifying and abusing Azure Arc for hybrid escalation and persistence | IBM