The issue occurs because SMTP relay is not enabled for the vCenter Server on the mail server.
vCenter does not directly manage SMTP relay permissions. It relies on the configured SMTP server to send outbound mail. If the SMTP server is not configured to allow relay from the vCenter’s IP address, the server rejects the mail request with the 550 5.7.1 Unable to relay error.
To resolve the issue, enable SMTP relay for the vCenter Server on the mail server.