Access denied when browsing MVC web application with windows authentication - asp.net

I deployed my MVC web Application on a machine with windows server 2008 R2(web server) that joined the company domain (the web server is not the same server has the active directory installed) my application is using integrated windows authentication. When browsing the application I got prompted by dialog to enter the login credentials and after login I got the error
"403 - Forbidden: Access is denied.
You do not have permission to view this directory or page using the credentials that you supplied."
I configured the Application authentication on IIS I disabled all authentication types and enabled only the windows authentication and Asp.net impersonation, also I set the identity of the application pool to be "local system"
My Question are: How to fix this issue? and Why the browser (all browsers not only IE) prompt the user with user credentials dialogue?
Note: I Just created a web application using Visual studio 2015 and selected authentication type "windows authentication" and left the default configuration as it is.

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IIS - Custom Application Pool identity not being used

I have an ASP.NET web application that uses an Application Pool with a custom identity set to connect to DB via Trusted Authentication.
I have this working correctly on a dozen servers, yet I am having an issue with one: IIS is not using the custom identity and is instead attempting to impersonate the user when initiating the DB connection.
I verified I have the app pool configured to use the custom account and my web.config has <identity impersonate="false"/>. In fact I'm using an exact copy of the code and web.config from another properly working box.
I do have Windows Authentication enabled for the app to get the user login, but not for impersonation, and this is working correctly on 12 of 13 servers. If I disable Windows Authentication on the impacted box, I get Login failed for user 'NT AUTHORITY\ANONYMOUS LOGON when accessing the site.
I tried recreating the application pool and the the IIS Application to no avail.
Anyone seen this behavior before? I'm running out of ideas. Thanks!
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Server 2008 R2 64bit

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We're setting up an ASP.NET 4.0 website on Windows Server 2008. The site uses Integrated Windows Authentication for authentication. (It does not use ASP.NET authentication or authorization.)
In IIS, we have only Windows Authentication enabled.
When we browse to the site using localhost as the host header, the site works fine. When we browse to it using the FQDN, the site prompts for username/password but doesn't accept the validly entered credentials.
Some items to note:
IE does have Integrated Windows Authentication enabled
The site with FQDN is entered in the Intranet zone in IE
We've tried adding the site to the Trusted sites to no avail
We did change the Identity on the AppPool from ApplicationPoolIndentity to Network Service with no success
We verified that IUSR has read and execute access to the directory and files
We've set NTAuthenticationProviders to both "NTLM" and "Negotiate,NTLM"
What are we missing?
Thanks.
We were informed finally that the server is not on the same domain as we had been led to believe so it couldn't authenticate against Active Directory. (We had been testing with a local account.)

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