M365 groups cannot contain other groups.

 https://docs.microsoft.com/en-us/azure/active-directory/fundamentals/active-directory-groups-membership-azure-portal

We don't currently support:

DO NOT support the FOLLOWING:

Adding groups to a group synced with on-premises Active Directory.

Adding Security groups to Microsoft 365 groups.

Adding Microsoft 365 groups to Security groups or other Microsoft 365 groups.

Assigning apps to nested groups.

Applying licenses to nested groups.

Adding distribution groups in nesting scenarios.

Adding security groups as members of mail-enabled security groups