This is an “interesting” error message. I think confusing is the correct word here. According to the message my Local Network creation process is failed with XML Schema Validation Error in Network Configuration at line 7, 9 error message.
When I looked at the XML file, there was nothing in the Address Space section.
Because I forgot to specify the address space in the configuration page. Everything started working once I added the address space.
and here is the real and correct XML file for this configuration. As you can see it has populated with the network configuration details. Line # 7 and 9 contains the AddressPrefix and VPNGatewasyAddress information. This information was missing in the pervious XML file.
Since Azure Management Portal doesn't provide any other detailed information, the Export to XML is the best option to troubleshoot these types of error messages. Regardless, this error message is confusing and the OK button should be grayed out without providing the complete AddressSpace information.