OneDrive for Business Known Folder Move fails before setup completes for device refresh projects: Fix Guide

When you refresh a device for a new user or reimage a computer, Known Folder Move should redirect Desktop, Documents, and Pictures to OneDrive automatically. Instead, the setup process stops early and shows an error that the folders cannot be moved. This failure usually happens because the previous user’s OneDrive sync state, stale registry keys, or group policy conflicts block the KFM initialization. This guide explains why the move fails on refreshed devices and provides the steps to resolve the issue so the sync can complete.

Why Known Folder Move Fails After a Device Refresh

Known Folder Move relies on a clean OneDrive account state and uninterrupted folder redirect permissions. When a device is refreshed, the local Windows profile may still contain remnants of the previous user’s OneDrive configuration. Common technical causes include:

A stale OneDrive account entry in the Windows Credential Manager or registry prevents the new user’s KFM policy from applying. The OneDrive client sees the old account data and skips the folder redirect step, thinking it is already configured. Additionally, if the device was part of a previous tenant or the user was signed into a different Microsoft 365 account, the sync engine cannot match the new user’s identity to the folder paths.

Group Policy settings from the organization may also block KFM. Even if the policy is meant to be enabled, a misconfigured “Prevent users from redirecting their Windows known folders to OneDrive” policy set to Enabled will stop the move before it starts. The device refresh does not automatically clear or refresh group policies, so the old policy remains active.

Another factor is the OneDrive Files On-Demand state. If the previous user enabled Files On-Demand, the local folder structure may be marked as “online-only.” When the new user signs in, OneDrive sees the existing online-only markers and refuses to move the folders because it interprets them as already synced. This conflict causes the setup to fail silently or show error 0x8007016A.

Steps to Clear the Blocked State and Restart Known Folder Move

Follow these steps in order to remove the stale configuration and allow Known Folder Move to complete on the refreshed device. Perform all steps while signed into Windows with the new user account that needs the folder redirect.

1. Sign out of OneDrive and close the client
   Right-click the OneDrive cloud icon in the system tray and select Help & Settings > Quit OneDrive. Confirm the sign-out if prompted. This stops all sync activity so you can safely edit the configuration.
2. Clear stored credentials from Windows Credential Manager
   Open Control Panel, select User Accounts, then Credential Manager. Click Windows Credentials. Look for any entry that contains “OneDrive Cached Credential” or “MicrosoftOffice16_Data:ADAL:” followed by a GUID. Click the arrow next to each entry and select Remove. Confirm the removal. This forces OneDrive to request fresh authentication on the next sign-in.
3. Delete stale OneDrive registry keys for the business account
   Press Windows + R, type regedit, and press Enter. Navigate to HKEY_CURRENT_USER\Software\Microsoft\OneDrive\Accounts\Business1. Right-click the Business1 key and select Delete. If a Business2 key exists, delete it as well. Do not delete the entire Accounts key — only the subkeys that correspond to the old tenant or user.
4. Remove the OneDrive folder cache from the user profile
   Open File Explorer and navigate to %LOCALAPPDATA%\Microsoft\OneDrive\settings\Business1. Delete the entire Business1 folder. If the folder does not exist, skip this step. This removes cached sync metadata that may conflict with the new user’s folder paths.
5. Restart OneDrive and sign in with the correct work account
   Open the Start menu, type “OneDrive,” and press Enter. Sign in using the new user’s Microsoft 365 work or school account. Complete the initial setup wizard but do not change the default folder location yet.
6. Manually trigger Known Folder Move from OneDrive settings
   Right-click the OneDrive cloud icon and select Settings. Go to the Sync and backup tab and click Manage backup. You will see the status for Desktop, Documents, and Pictures. Click Start backup for each folder that shows “Your folders aren’t backed up.” If the button is grayed out, proceed to the next step.
7. Verify group policy is not blocking the move
   Press Windows + R, type gpedit.msc, and press Enter. Navigate to Computer Configuration > Administrative Templates > Windows Components > OneDrive. Double-click “Prevent users from redirecting their Windows known folders to OneDrive.” Ensure the setting is either Not Configured or Disabled. If it is Enabled, change it to Disabled, click Apply, and run gpupdate /force from an elevated Command Prompt. Then return to OneDrive Settings > Sync and backup > Manage backup and try again.

If OneDrive Still Has Issues After the Main Fix

OneDrive Shows Error 0x8007016A When Trying to Move Folders

Error 0x8007016A indicates that the local folder is marked as “cloud-only” or “placeholder” from a previous Files On-Demand state. To resolve this, open File Explorer, right-click the Desktop, Documents, or Pictures folder, and select Properties. Go to the Location tab and note the current path. Click Restore Default, then Apply. Windows will move the folder back to its default location under C:\Users\[username]. After the move completes, repeat the steps in the main fix section to restart Known Folder Move.

Known Folder Move Button Is Grayed Out in Settings

A grayed-out backup button means OneDrive has already applied a folder redirect policy from the tenant. Check the Microsoft 365 admin center: go to Settings > Org Settings > OneDrive > Sync. Under “Show notification to users who have known folders redirected,” ensure the policy is set to “Show notification” or “Silently move known folders to OneDrive.” If the policy is set to “Do not show notification,” users cannot manually start the move. Change the policy to one of the first two options, wait 15 minutes, then return to the user’s device and check again.

OneDrive Keeps Asking for the Previous User’s Credentials

If OneDrive prompts for credentials from a different account, the Windows credential cache still contains tokens from the previous user. Open Credential Manager again and remove all entries under “Generic Credentials” that contain “MicrosoftOffice16_Data:ADAL:” or “OneDrive Cached Credential.” Then restart OneDrive. If the problem persists, sign out of all Microsoft 365 apps by going to File > Account > Sign out in each Office app, then sign back in with the correct account.

Manual Reset vs Silent Move via Group Policy: Key Differences

Item	Manual Reset (Steps Above)	Silent Move via Group Policy
User interaction required	User must sign in and click Start backup	No user interaction — move happens automatically at sign-in
Best for	Device refresh projects with one or few devices	Large-scale deployments with hundreds of devices
Prerequisite	Clear stale registry and credential entries	Group Policy Object with “Silently move known folders to OneDrive” enabled
Error handling	User sees error and can retry manually	Errors are logged in Event Viewer under Applications and Services Logs > Microsoft > Windows > OneDrive
Time to complete	5–15 minutes per device	1–2 minutes per device after policy applies

After completing the manual reset, Known Folder Move should finish without errors. If the device is part of a large refresh project, consider deploying the silent move group policy to avoid manual cleanup on every machine. Use the registry and credential cleanup steps as a pre-flight script before the new user signs in. This approach reduces the failure rate to near zero and keeps the sync state consistent across the organization.