When customer migrate their application from on premise data center to Azure data center, it may have a short time that same IP subnet in both Azure and on premise side.
By design, Azure didn’t support overlapping IP subnet. Below is a short term workaround by using VxLAN to bridge same IP subnet in both side.

Customer have one subnet 10.2.0.0/24 on premise and Azure.
Azure VM1 have IP 10.2.0.4/24, VM2 have IP 10.2.0.6/24.
On premise VM3 have IP 10.2.0.10/24.

Azure network use overlay technology. GRE is tunnel protocol using by Azure.
VxLAN or IPSec is the option that can be used by customers.
IPSec encryption and decryption will cost more compute cycle and add latency.
VxLAN is a UDP encapsulation technology and can be support both commercial and open source software.
This design is using VxLAN as overlay technology and Cisco CSR1000v as commercial solution.

On premise side, CSR1000v (On Premise) will act as subnet 10.2.0.0/24 gateway and VxLAN tunnel.
Interface G1 will have 10.2.0.1/24 and VM3 will point this IP as default gateway.
Interface G2 is internet facing and can be 1:1 NAT to public IP address.
Tunnel interface is used to encapsulate packet with VxLAN.

On Premise CSR1000v sample configuration: VxLAN tunnel setup:

interface Tunnel2
 ip address 10.0.0.1 255.255.255.0
 tunnel source <G1 interface IP>
 tunnel mode vxlan-gpe ipv4
 tunnel destination <Azure CSR1000v primary interface public IP>

Point to Azure VM Static route

ip route 10.2.0.4 255.255.255.255 Tunnel2
ip route 10.2.0.6 255.255.255.255 Tunnel2

On Azure side, CSR1000v (Azure) will act VxLAN tunnel role.
Interface G1 will be primary interface that can be accessed from internet.
Interface G2 is VM inside facing.
Tunnel interface is used to encapsulate packet with VxLAN.
UDR will apply in subnet 10.2.0.0/24, destination is VM IP in on premise side (VM3: 10.2.0.10/32), next hop is interface G2 ip address.
Azure CSR1000v sample configuration

interface Tunnel2
 ip address 10.0.0.2 255.255.255.0
 tunnel source <G1 interface IP>
 tunnel mode vxlan-gpe ipv4
 tunnel destination <On Premise CSR1000v public IP>

Routing configuration

ip route 10.2.0.10 255.255.255.255 Tunnel2

After setup VxLAN, ping from both side CSR1000v to the other will be ok.
Also, ping from VM1/VM2 to VM3 will be ok.

In this case, we use VxLAN general protocol extension (GPE) instead of VxLAN.
VxLAN GPE is design for encapsulate other protocol inside VxLAN, but without complex configuration.
Detail information https://www.ietf.org/id/draft-ietf-nvo3-vxlan-gpe-04.txt
If look inside VxLAN-GPE packet format, it encapsulates ICMP directly into VxLAN.Don’t need to assign VNI information.
From CSR1000v configuration, just setup tunnel interface doesn’t need to take care inner packet MAC lookup.

By default, if VM1/VM2 want to talk with VM3 in same subnet, it will generate ARP for querying destination MAC.
After we test it, Windows and CentOS can send the packet with default gateway MAC instead of destination MAC.
Ubuntu will not use default gateway MAC, we must add static ARP in this case.
Azure default behavior: Azure VM sent traffic with default destination MAC (1234.5678.9abc)
All packet sent to VM with default destination MAC (547f.ee75.b5bc)