You can use security keys as a passwordless sign-in method within your organization. A security key is a physical device that's used with a unique PIN to sign in to your work or school account. Because security keys require you to have the physical device and something that only you know, it's considered a stronger verification method than a username and password.
Prerequisite
What is a security key?
Microsoft currently supports several designs and providers of security keys using the Fast Identity Online (FIDO2) Passwordless authentication protocols. The key allows you to sign into your work or school account to access your cloud-based resources when on a supported device and web browser.
Before you begin
Before you can register your security key, the following conditions must be met:
Register a security key
You must create your security key and give it a unique PIN before you can sign into your work or school account using the key. You may have up to 10 keys registered with your account.
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Go to the My Profile page at My Account and sign in if you haven't already done so.
- If prompted to sign in with 2-factor authentication, do so.
- Make sure your physical security key is available.
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Step 1:
Click + Add a sign-in method & Select Passkey
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Step 2:
Click Next
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Step 3:
Under Save your passkey, click Change

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Step 4:
Select Security key
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Step 5:
Insert your security key into a USB port on your device.
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Step 6:
Create a pin for your security key.
IMPORTANT: Please remember this pin as this is what will allow you access to utilize your security key.
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Step 7:
Once the pin is accepted, press the button on your security key.
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Step 8:
Name your key as you wish for identification.
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Step 9:
Passkey created.
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When created successfully, your security will appear in your list of sign-in methods.

After your Register a security key, you can manage it at Manage the security key settings.
Reference: https://support.microsoft.com/en-us/account-billing/set-up-a-security-key-as-your-verification-method-2911cacd-efa5-4593-ae22-e09ae14c6698