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Can we use MIP SDK to apply sensitivity labels to SharePoint Online files. If yes, please provide the reference/sample code to apply the sensitivity label.

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No, this isn't directly supported today. You must pull the label down from SharePoint, use the SDK to label, then write the file back to SharePoint.

Alternatively, there are Graph APIs to apply the label.

https://www.linkedin.com/pulse/programatic-way-apply-sensitivity-label-file-sanjoyan-mustafi/

Tom Moser
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