Taken from Microsoft's guide:
KB5028997: Instructions to manually resize your partition to install the WinRE update - Microsoft Support
When trying to expand a virtual OS disk on a server you may encounter the recovery partition being in the way of extending the volume:
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In order to get around this you can disable the recovery partition, remove it, expand into the unallocated area then recreate the partition.
Manually resize your partition by 250 MB
Open a Command Prompt window (cmd) as admin.
To check the WinRE status, run reagentc /info. If the WinRE is installed, there should be a “Windows RE location” with a path to the WinRE directory. An example is, “Windows RE location: [file://%3f/GLOBALROOT/device/harddisk0/partition4/Recovery/WindowsRE]\\?\GLOBALROOT\device\harddisk0\partition4\Recovery\WindowsRE.” Here, the number after “harddisk” and “partition” is the index of the disk and partition WinRE is on.
To disable the WinRE, run reagentc /disable
Shrink the OS partition and prepare the disk for a new recovery partition.
To shrink the OS, run diskpart
Run list disk
To select the OS disk, run sel disk<OS disk index> This should be the same disk index as WinRE.
To check the partition under the OS disk and find the OS partition, run list part
To select the OS partition, run sel part<OS partition index>
Run shrink desired=250 minimum=250
To select the WinRE partition, run sel part<WinRE partition index>
To delete the WinRE partition, run delete partition override
Create a new recovery partition.
First, check if the disk partition style is a GUID Partition Table (GPT) or a Master Boot Record (MBR). To do that, run list disk. Check if there is an asterisk character (*) in the “Gpt” column. If there is an asterisk character (*), then the drive is GPT. Otherwise, the drive is MBR.
If your disk is GPT, run create partition primary id=de94bba4-06d1-4d40-a16a-bfd50179d6ac followed by the command gpt attributes =0x8000000000000001
If your disk is MBR, run create partition primary id=27
To format the partition, run format quick fs=ntfs label=”Windows RE tools”
If your disk is MBR, run set id=27
To confirm that the WinRE partition is created, run list vol
To exit from diskpart, run exit
To re-enable WinRE, run reagentc /enable
To confirm where WinRE is installed, run reagentc /info
Note If creation failed or you do not want to extend the WinRE partition, run reagentc /enable to re-enable WinRE.