diff --git a/test/e2e/azure_apiserver_ilb.go b/test/e2e/azure_apiserver_ilb.go
index 4cfbd6c990a..a172023c629 100644
--- a/test/e2e/azure_apiserver_ilb.go
+++ b/test/e2e/azure_apiserver_ilb.go
@@ -115,12 +115,13 @@ import (
 
 // AzureAPIServerILBSpecInput is the input for AzureAPIServerILBSpec.
 type AzureAPIServerILBSpecInput struct {
-	BootstrapClusterProxy framework.ClusterProxy
-	Cluster               *clusterv1.Cluster
-	Namespace             *corev1.Namespace
-	ClusterName           string
-	ExpectedWorkerNodes   int32
-	WaitIntervals         []interface{}
+	BootstrapClusterProxy                   framework.ClusterProxy
+	Cluster                                 *clusterv1.Cluster
+	Namespace                               *corev1.Namespace
+	ClusterName                             string
+	ExpectedWorkerNodes                     int32
+	WaitIntervals                           []interface{}
+	TemplateHasPrivateIPCustomDNSResolution bool
 }
 
 // AzureAPIServerILBSpec implements a test that verifies the Azure API server ILB is created.
@@ -205,16 +206,23 @@ func AzureAPIServerILBSpec(ctx context.Context, inputGetter func() AzureAPIServe
 	Expect(err).NotTo(HaveOccurred())
 
 	By("Getting the controlplane endpoint name")
-	controlPlaneEndpointName, apiServerILBPrivateIP := "", ""
+	controlPlaneEndpointDNSName, apiServerILBPrivateIP := "", ""
 	for _, frontendIP := range deployedAzureCluster.Spec.NetworkSpec.APIServerLB.FrontendIPs {
 		if frontendIP.PublicIP != nil && frontendIP.PublicIP.DNSName != "" {
-			controlPlaneEndpointName = frontendIP.PublicIP.DNSName
+			fmt.Fprintf(GinkgoWriter, "Control Plane Endpoint Name: %s\n", frontendIP.PublicIP.DNSName)
+			controlPlaneEndpointDNSName = frontendIP.PublicIP.DNSName
 		} else if frontendIP.PrivateIPAddress != "" {
+			fmt.Fprintf(GinkgoWriter, "API Server ILB Private IP: %s\n", frontendIP.PrivateIPAddress)
 			apiServerILBPrivateIP = frontendIP.PrivateIPAddress
 		}
 	}
-	Expect(controlPlaneEndpointName).NotTo(BeEmpty(), "controlPlaneEndpointName should be found at AzureCluster.Spec.NetworkSpec.APIServerLB.FrontendIPs with a valid DNS name")
-	Expect(controlPlaneEndpointName).To(Equal(fmt.Sprintf("%s-%s.%s.cloudapp.azure.com", input.ClusterName, os.Getenv("APISERVER_LB_DNS_SUFFIX"), os.Getenv("AZURE_LOCATION"))))
+
+	// skip checking the controlPlaneEndpointDNSName in case of default template
+	// TODO: remove this block when the underlying infra spec is also updated with private IP of the internal load balancer
+	if input.TemplateHasPrivateIPCustomDNSResolution {
+		Expect(controlPlaneEndpointDNSName).NotTo(BeEmpty(), "controlPlaneEndpointDNSName should be found at AzureCluster.Spec.NetworkSpec.APIServerLB.FrontendIPs with a valid DNS name")
+		Expect(controlPlaneEndpointDNSName).To(Equal(fmt.Sprintf("%s-%s.%s.cloudapp.azure.com", input.ClusterName, os.Getenv("APISERVER_LB_DNS_SUFFIX"), os.Getenv("AZURE_LOCATION"))))
+	}
 	Expect(apiServerILBPrivateIP).NotTo(BeEmpty(), "apiServerILBPrivateIP should be found at AzureCluster.Spec.NetworkSpec.APIServerLB.FrontendIPs when apiserver ilb feature flag is enabled")
 	// ------------------------ //
 
@@ -419,6 +427,14 @@ func AzureAPIServerILBSpec(ctx context.Context, inputGetter func() AzureAPIServe
 				if strings.Contains(output, expectedCmdOutput) {
 					testResult[expectedCmdOutput] = true
 				}
+
+				// TODO: remove this below block when the underlying infra spec is also updated with
+				// private IP of the internal load balancer
+				// For now, a default template will not have the private IP of the internal load balancer in its /etc/hosts
+				// So, we will skip the test for default templates.
+				if !input.TemplateHasPrivateIPCustomDNSResolution {
+					testResult[expectedCmdOutput] = true
+				}
 			}
 
 			if testResult[apiServerILBPrivateIP] && testResult["Hello from node-debug pod"] {
diff --git a/test/e2e/azure_test.go b/test/e2e/azure_test.go
index 9fc53783458..b9b1467da1f 100644
--- a/test/e2e/azure_test.go
+++ b/test/e2e/azure_test.go
@@ -1189,12 +1189,13 @@ var _ = Describe("Workload cluster creation", func() {
 			By("Probing workload cluster with APIServerILB feature gate", func() {
 				AzureAPIServerILBSpec(ctx, func() AzureAPIServerILBSpecInput {
 					return AzureAPIServerILBSpecInput{
-						BootstrapClusterProxy: bootstrapClusterProxy,
-						Cluster:               result.Cluster,
-						Namespace:             namespace,
-						ClusterName:           clusterName,
-						ExpectedWorkerNodes:   result.ExpectedWorkerNodes(),
-						WaitIntervals:         e2eConfig.GetIntervals(specName, "wait-worker-nodes"),
+						BootstrapClusterProxy:                   bootstrapClusterProxy,
+						Cluster:                                 result.Cluster,
+						Namespace:                               namespace,
+						ClusterName:                             clusterName,
+						ExpectedWorkerNodes:                     result.ExpectedWorkerNodes(),
+						WaitIntervals:                           e2eConfig.GetIntervals(specName, "wait-worker-nodes"),
+						TemplateHasPrivateIPCustomDNSResolution: false,
 					}
 				})
 			})
@@ -1203,7 +1204,7 @@ var _ = Describe("Workload cluster creation", func() {
 		})
 	})
 
-	Context("Creating a self-managed VM based cluster using API Server ILB feature gate and fully spec-ed out template [OPTIONAL][API-Server-ILB]", func() {
+	Context("Creating a self-managed VM based cluster using API Server ILB feature gate and fully spec-ed out APIServer ILB template [OPTIONAL][API-Server-ILB]", func() {
 		It("with three controlplane node and three worker nodes", func() {
 			clusterName = getClusterName(clusterNamePrefix, "apiserver-ilb")
 
@@ -1239,12 +1240,13 @@ var _ = Describe("Workload cluster creation", func() {
 			By("Probing workload cluster with APIServerILB feature gate", func() {
 				AzureAPIServerILBSpec(ctx, func() AzureAPIServerILBSpecInput {
 					return AzureAPIServerILBSpecInput{
-						BootstrapClusterProxy: bootstrapClusterProxy,
-						Cluster:               result.Cluster,
-						Namespace:             namespace,
-						ClusterName:           clusterName,
-						ExpectedWorkerNodes:   result.ExpectedWorkerNodes(),
-						WaitIntervals:         e2eConfig.GetIntervals(specName, "wait-worker-nodes"),
+						BootstrapClusterProxy:                   bootstrapClusterProxy,
+						Cluster:                                 result.Cluster,
+						Namespace:                               namespace,
+						ClusterName:                             clusterName,
+						ExpectedWorkerNodes:                     result.ExpectedWorkerNodes(),
+						WaitIntervals:                           e2eConfig.GetIntervals(specName, "wait-worker-nodes"),
+						TemplateHasPrivateIPCustomDNSResolution: true,
 					}
 				})
 			})