diff --git a/images/capi/Makefile b/images/capi/Makefile
index 65f68a7682..0326b17689 100644
--- a/images/capi/Makefile
+++ b/images/capi/Makefile
@@ -655,6 +655,7 @@ build-azure-vhd-rhel-8: ## Builds RHEL 8 VHD image for Azure
 build-azure-vhd-windows-2019-containerd: ## Builds for Windows Server 2019 with containerd
 build-azure-vhd-windows-2022-containerd: ## Builds for Windows Server 2022 with containerd
 build-azure-sig-windows-annual-containerd: ## Builds for Windows Server Annual Channel with containerd
+build-azure-vhd-windows-annual-containerd: ## Builds Windows Server Annual Channel VHD with containerd
 build-azure-sig-centos-7-gen2: ## Builds CentOS Gen2 managed image in Shared Image Gallery
 build-azure-sig-mariner-2-gen2: ## Builds Azure Linux 2 Gen2 managed image in Shared Image Gallery
 build-azure-sig-azurelinux-3-gen2: ## Builds Azure Linux 3 Gen2 managed image in Shared Image Gallery
@@ -874,6 +875,7 @@ validate-azure-vhd-ubuntu-2204: ## Validates Ubuntu 22.04 VHD image Azure Packer
 validate-azure-vhd-ubuntu-2404: ## Validates Ubuntu 24.04 VHD image Azure Packer config
 validate-azure-vhd-windows-2019-containerd: ## Validate Windows Server 2019 VHD with containerd image Azure Packer config
 validate-azure-vhd-windows-2022-containerd: ## Validate Windows Server 2022 VHD with containerd image Azure Packer config
+validate-azure-vhd-windows-annual-containerd: ## Validates Windows Server Annual Channel VHD image Azure Packer config
 validate-azure-sig-centos-7-gen2: ## Validates CentOS 7 Azure managed image in Shared Image Gallery Packer config
 validate-azure-sig-mariner-2-gen2: ## Validates Azure Linux 2 Gen2 Azure managed image in Shared Image Gallery Packer config
 validate-azure-sig-azurelinux-3-gen2: ## Validates Azure Linux 3 Gen2 Azure managed image in Shared Image Gallery Packer config
diff --git a/images/capi/azure_targets.sh b/images/capi/azure_targets.sh
index 952fc26c7f..4c8230bde8 100644
--- a/images/capi/azure_targets.sh
+++ b/images/capi/azure_targets.sh
@@ -1,7 +1,7 @@
-VHD_TARGETS="ubuntu-2004 ubuntu-2204 ubuntu-2404 centos-7 mariner-2 azurelinux-3 rhel-8 windows-2019-containerd windows-2022-containerd"
-VHD_CI_TARGETS="ubuntu-2204 ubuntu-2404 mariner-2 windows-2019-containerd windows-2022-containerd"
-SIG_TARGETS="ubuntu-2004 ubuntu-2204 ubuntu-2404 centos-7 mariner-2 azurelinux-3 rhel-8 windows-2019-containerd windows-2022-containerd flatcar"
-SIG_CI_TARGETS="ubuntu-2204 ubuntu-2404 mariner-2 windows-2019-containerd windows-2022-containerd flatcar"
+VHD_TARGETS="ubuntu-2004 ubuntu-2204 ubuntu-2404 centos-7 mariner-2 azurelinux-3 rhel-8 windows-2019-containerd windows-2022-containerd windows-annual-containerd"
+VHD_CI_TARGETS="ubuntu-2204 ubuntu-2404 mariner-2 windows-2019-containerd windows-2022-containerd windows-annual-containerd"
+SIG_TARGETS="ubuntu-2004 ubuntu-2204 ubuntu-2404 centos-7 mariner-2 azurelinux-3 rhel-8 windows-2019-containerd windows-2022-containerd flatcar windows-annual-containerd"
+SIG_CI_TARGETS="ubuntu-2204 ubuntu-2404 mariner-2 windows-2019-containerd windows-2022-containerd flatcar windows-annual-containerd"
 SIG_GEN2_TARGETS="ubuntu-2004 ubuntu-2204 ubuntu-2404 centos-7 mariner-2 azurelinux-3 flatcar"
 SIG_GEN2_CI_TARGETS="ubuntu-2204 ubuntu-2404 mariner-2 flatcar"
 SIG_CVM_TARGETS="ubuntu-2004 ubuntu-2204 ubuntu-2404 windows-2019-containerd windows-2022-containerd"
diff --git a/images/capi/packer/azure/scripts/init-sig.sh b/images/capi/packer/azure/scripts/init-sig.sh
index 447c11337c..b0ee80fd45 100755
--- a/images/capi/packer/azure/scripts/init-sig.sh
+++ b/images/capi/packer/azure/scripts/init-sig.sh
@@ -84,7 +84,7 @@ case ${SIG_TARGET} in
     create_image_definition ${SIG_TARGET} "win-2022-containerd" "V1" "Windows"
   ;;
   windows-annual-containerd)
-    create_image_definition ${SIG_TARGET} "win-annual-containerd" "V1" "Windows"
+    create_image_definition ${SIG_TARGET} "23h2-datacenter-core" "V1" "Windows"
   ;;
   windows-2019-containerd-cvm)
     SKU="windows-2019-cvm-containerd"
diff --git a/images/capi/packer/azure/windows-annual-containerd.json b/images/capi/packer/azure/windows-annual-containerd.json
index 8bfe24d57a..b8a4fadb7b 100644
--- a/images/capi/packer/azure/windows-annual-containerd.json
+++ b/images/capi/packer/azure/windows-annual-containerd.json
@@ -3,15 +3,14 @@
   "additional_registry_images_list": "",
   "build_name": "windows-annual-containerd",
   "distribution": "windows",
-  "distribution_version": "annual",
+  "distribution_version": "23h2",
+  "distribution_release": "23h2-datacenter-core",
+  "image_offer": "WindowsServer",
+  "image_publisher": "MicrosoftWindowsServer",
+  "image_sku": "23h2-datacenter-core",
+  "image_version": "latest",
   "load_additional_components": "false",
   "runtime": "containerd",
-  "shared_image_gallery_name": "{{env `GALLERY_NAME`}}",
-  "source_sig_image_name": "{{env `SOURCE_SIG_IMAGE_NAME`}}",
-  "source_sig_image_version": "{{env `SOURCE_SIG_IMAGE_VERSION`}}",
-  "source_sig_name": "{{env `SOURCE_SIG_NAME`}}",
-  "source_sig_resource_group_name": "{{env `SOURCE_SIG_RESOURCE_GROUP`}}",
-  "source_sig_subscription_id": "{{env `SOURCE_SIG_SUB_ID`}}",
   "storage_account_type": "Standard_LRS",
   "vm_size": "Standard_D4s_v3",
   "windows_updates_kbs": "",