diff --git a/cloudinit/config/cc_set_passwords.py b/cloudinit/config/cc_set_passwords.py
index 65856907041..8cb6a1ec515 100644
--- a/cloudinit/config/cc_set_passwords.py
+++ b/cloudinit/config/cc_set_passwords.py
@@ -8,8 +8,9 @@
 """Set Passwords: Set user passwords and enable/disable SSH password auth"""
 
 import logging
+import random
 import re
-from string import ascii_letters, digits
+import string
 from typing import List
 
 from cloudinit import features, lifecycle, subp, util
@@ -30,9 +31,6 @@
 
 LOG = logging.getLogger(__name__)
 
-# We are removing certain 'painful' letters/numbers
-PW_SET = "".join([x for x in ascii_letters + digits if x not in "loLOI01"])
-
 
 def get_users_by_type(users_list: list, pw_type: str) -> list:
     """either password or type: RANDOM is required, user is always required"""
@@ -248,4 +246,29 @@ def handle(name: str, cfg: Config, cloud: Cloud, args: list) -> None:
 
 
 def rand_user_password(pwlen=20):
-    return util.rand_str(pwlen, select_from=PW_SET)
+    if pwlen < 4:
+        raise ValueError("Password length must be at least 4 characters.")
+
+    # There are often restrictions on the minimum number of character
+    # classes required in a password, so ensure we at least one character
+    # from each class.
+    res_rand_list = [
+        random.choice(string.digits),
+        random.choice(string.ascii_lowercase),
+        random.choice(string.ascii_uppercase),
+        random.choice(string.punctuation),
+    ]
+
+    res_rand_list.extend(
+        list(
+            util.rand_str(
+                pwlen - len(res_rand_list),
+                select_from=string.digits
+                + string.ascii_lowercase
+                + string.ascii_uppercase
+                + string.punctuation,
+            )
+        )
+    )
+    random.shuffle(res_rand_list)
+    return "".join(res_rand_list)
diff --git a/tests/unittests/config/test_cc_set_passwords.py b/tests/unittests/config/test_cc_set_passwords.py
index bc6f4cbda30..8d394a87cf5 100644
--- a/tests/unittests/config/test_cc_set_passwords.py
+++ b/tests/unittests/config/test_cc_set_passwords.py
@@ -2,6 +2,7 @@
 
 import copy
 import logging
+import string
 from unittest import mock
 
 import pytest
@@ -559,6 +560,40 @@ def test_expire_old_behavior(self, cfg, mocker, caplog):
             assert "Expired passwords" not in caplog.text
 
 
+class TestRandUserPassword:
+    def _get_str_class_num(self, str):
+        return sum(
+            [
+                any(c.islower() for c in str),
+                any(c.isupper() for c in str),
+                any(c.isupper() for c in str),
+                any(c in string.punctuation for c in str),
+            ]
+        )
+
+    @pytest.mark.parametrize(
+        "strlen, expected_result",
+        [
+            (1, ValueError),
+            (2, ValueError),
+            (3, ValueError),
+            (4, 4),
+            (5, 4),
+            (5, 4),
+            (6, 4),
+            (20, 4),
+        ],
+    )
+    def test_rand_user_password(self, strlen, expected_result):
+        if expected_result is ValueError:
+            with pytest.raises(expected_result, match="Password length must be at least 4 characters."):
+                setpass.rand_user_password(strlen)
+        else:
+            rand_password = setpass.rand_user_password(strlen)
+            assert len(rand_password) == strlen
+            assert self._get_str_class_num(rand_password) == expected_result
+
+
 class TestSetPasswordsSchema:
     @pytest.mark.parametrize(
         "config, expectation",