Security :: Centralized Authorized_keys (AuthorizedKeysFile) For Sshd

I have a RHEL server with users logging in via ssh. I want to start using public keys instead of passwords with ssh. But public key is as good as a rotten tomato if it is unpassphrased and I cannot guarantee that all users will use passphrases. Therefore I will generate both private and public key on the server and will distribute the private key to the user via user-friendly web interface and thats where I will force them to use passphrase. I know they can change later the passphrase or remove it totally but my users are not so advanced.

So now I am trying to setup a centralized authorized_keys file with to be able to make them only root writable so they cannot put their own public keys on the server , it will be handled by scripts. Now the actual problem. I created /etc/ssh/keys directory instead of ~/.ssh and changed AuthorizedKeysFile to /etc/ssh/keys/%u in sshd_config But when I try to connect with the key I get the following error in the logs (after enabling DEBUG3 in sshd_config)

<CUT>
Mar 8 15:22:28 stagesmpp sshd[12248]: debug3: mm_request_receive entering
Mar 8 15:22:29 stagesmpp sshd[22358]: debug2: channel 0: rcvd adjust 33544
Mar 8 15:22:30 stagesmpp sshd[12248]: debug3: monitor_read: checking request 20

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