diff --git a/test/e2e/aks_public_ip_prefix.go b/test/e2e/aks_public_ip_prefix.go
index 2878a275110..5258e4ea83f 100644
--- a/test/e2e/aks_public_ip_prefix.go
+++ b/test/e2e/aks_public_ip_prefix.go
@@ -83,7 +83,7 @@ func AKSPublicIPPrefixSpec(ctx context.Context, inputGetter func() AKSPublicIPPr
 		publicIPPrefix = resp.PublicIPPrefix
 	}, input.WaitIntervals...).Should(Succeed(), "failed to create public IP prefix")
 
-	By("Creating node pool with 2 nodes")
+	By("Creating node pool with 3 nodes")
 	infraMachinePool := &infrav1.AzureManagedMachinePool{
 		ObjectMeta: metav1.ObjectMeta{
 			Name:      "pool3",
@@ -108,7 +108,7 @@ func AKSPublicIPPrefixSpec(ctx context.Context, inputGetter func() AKSPublicIPPr
 		},
 		Spec: expv1.MachinePoolSpec{
 			ClusterName: input.Cluster.Name,
-			Replicas:    ptr.To[int32](2),
+			Replicas:    ptr.To[int32](3),
 			Template: clusterv1.MachineTemplateSpec{
 				Spec: clusterv1.MachineSpec{
 					Bootstrap: clusterv1.Bootstrap{
@@ -144,6 +144,27 @@ func AKSPublicIPPrefixSpec(ctx context.Context, inputGetter func() AKSPublicIPPr
 		}, input.WaitIntervals...).Should(Succeed(), "Deleted AzureManagedMachinePool %s/%s still exists", infraMachinePool.Namespace, infraMachinePool.Name)
 	}()
 
+	By("Verifying the AzureManagedMachinePool converges to a failed ready status")
+	Eventually(func(g Gomega) {
+		infraMachinePool := &infrav1.AzureManagedMachinePool{}
+		err := mgmtClient.Get(ctx, client.ObjectKeyFromObject(machinePool), infraMachinePool)
+		g.Expect(err).NotTo(HaveOccurred())
+		cond := conditions.Get(infraMachinePool, infrav1.AgentPoolsReadyCondition)
+		g.Expect(cond).NotTo(BeNil())
+		g.Expect(cond.Status).To(Equal(corev1.ConditionFalse))
+		g.Expect(cond.Reason).To(Equal(infrav1.FailedReason))
+		g.Expect(cond.Message).To(ContainSubstring("PublicIpPrefixOutOfIpAddressesForVMScaleSet"))
+	}, input.WaitIntervals...).Should(Succeed())
+
+	By("Scaling the MachinePool to 2 nodes")
+	Eventually(func(g Gomega) {
+		err = mgmtClient.Get(ctx, client.ObjectKeyFromObject(machinePool), machinePool)
+		g.Expect(err).NotTo(HaveOccurred())
+		machinePool.Spec.Replicas = ptr.To[int32](2)
+		err = mgmtClient.Update(ctx, machinePool)
+		g.Expect(err).NotTo(HaveOccurred())
+	}, input.WaitIntervals...).Should(Succeed())
+
 	By("Verifying the AzureManagedMachinePool becomes ready")
 	Eventually(func(g Gomega) {
 		infraMachinePool := &infrav1.AzureManagedMachinePool{}