Microsoft Reference : SP264006
Issue Status: RESOLVED
Issue Description: Users may be unable to create SharePoint Online subsites when subsite creation is disabled in the admin center.
Final Update – 23/06/2021 18:45:00 PM: Microsoft have reviewed reports in which users are unable to create SharePoint Online subsites and assessed that the problem only occurs when subsite creation is disabled from the SharePoint Online admin center. Microsoft recently deployed an update to enforce subsite creation policy from the admin center, thus blocking workarounds users were leveraging to create subsites.
If your organization wants to create subsites, one of your admins will need to allow subsite creation from within the SharePoint Online admin center. A service incident didn’t occur and the Microsoft-managed environment is functioning as intended.