Create an organizational unit for the contact group

Go to Exchange admin center’s “recipients>contacts” tab and create the contact. Select the organizational unit to the respective group

Go to “organization>address lists” tab and create new

Name the group and select “Only the following recipient types”. Go to the rules and select “Recipient container” then choose  the created organizational unit.

Make sure the up to date status is “Yes” and if it is “No” the update button will appear and click it to update.