iMac M1 touch ID missing

No, Touch ID is not disabled for the iMac M1. Try and pair the keyboard using its shipped lightning to usb c cable to see if Touch ID appears in the settings. If it does not appear, you can try and restart your Mac to see if it will appear.

Also, make sure that your Mac is running the latest available software

This is really weird. First things first: can you confirm that the Touch ID on the keyboard is physically working by pairing it to another Mac?

If not, try and boot the Mac in the safe mode to see if you can get the touch id settings from there

Start up your Mac with Apple silicon in safe mode

1. On your Mac, choose Apple menu  > Shut Down.
2. Wait for your Mac to shut down completely. A Mac is completely shut down when the screen is black and any lights (including in the Touch Bar) are off.
3. Press and hold the power button on your Mac until “Loading startup options” appears.
4. Select a volume.
5. Press and hold the Shift key, then click Continue in Safe Mode.
6. The computer restarts automatically. When the login window appears, you should see “Safe Boot” in the menu bar.

When you called AppleCare ( AppleCare Contact Info ) what did they say?

By the way, do you have any of the following types of third party apps installed:

• Antivius
• Cleaning
• VPN
• Security
• Maintenance