You have a hybrid deployment of Exchange Online in Office 365 and on-premises Exchange Server. In this situation, your Autodiscover record resolves to an on-premises Exchange server, and users' mailboxes are in Exchange Online. When you create an Office 365 group in this scenario, users can't access the group through Microsoft Outlook 2016. However, users can access the group through Outlook on the web.
This issue occurs if the primary SMTP address of the Office 365 Group uses an incorrect format. For example: <Office365GroupName>@contoso.com.
Modern groups use an Autodiscover XML file that's located in the %LocalAppData%\Microsoft\Outlook\16 folder. The primary SMTP address of the group should use the following format: