How to fix: “The local policy of this system does not permit you to logon interactively.”


Reason: User is not a member of the local administrator’s group. By default the administrator’s group is part of the Remote Desktop Users group.
According to Microsoft, this issue occurs because the user account is not a member of the local Remote Desktop Users group.
The easiest fix is to make the user a member of the Local administrator group: for domain users:
Log on on to the user computer as a domain administrator
Open Control Panel and select Users and Accounts
The list of users will display; Click on the user name you want to change and make it part of the Administrators group
Apply the change
Log out and Try to logon via RDP using the username you just changed
You should be able to logon fine. You are done!
(For workgroup users: Right click my computer – Manage – Users and Groups – select user and add it to the administrators group. You are done

Also you can follow microsoft instructions here:

To resolve this issue, add allowed users to the Remote Desktop Users list:
Click Start, point to Settings, and then click Control Panel.
Double-click System, and then on the Remote tab, click Select Remote Users.
Click Add type in the user account name, and then click OK.

If you are adding more than one user name, use a semicolon to separate the names.
Note: Adding users to the Remote Desktop Group requires that you are logged on through an administrator account.

Also, make sure that the Remote Desktop Users group has sufficient permissions to log on through Terminal Services. To do this, follow these steps:
Click Start, click Run, type secpol.msc, and then click OK.
Expand Local Policies, and then click User Rights Assignment.
In the right pane, double-click Allow logon through Terminal Services. Make sure that the Remote Desktop Users group is listed.
Click OK.
In the right pane, double-click Deny logon through Terminal Services. Make sure that the Remote Desktop Users group is not listed, and then click OK.
Close the Local Security Settings snap-in.

Source: http://support.microsoft.com/kb/289289

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