Given answer is correct.
https://learn.microsoft.com/en-us/entra/identity/authentication/howto-mfa-app-passwords#allow-users-to-create-app-passwords
1. Sign in to the Microsoft Entra admin center as at least an Authentication Policy Administrator.
2. Browse to Conditional Access > Named locations.
3. Click on "Configure MFA trusted IPs" in the bar across the top of the Conditional Access | Named Locations window.
4. On the Multifactor authentication page, within the Service Settings tab, under "app passwords", select the "Do not allow users to create app passwords to sign in to non-browser apps"
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