I have already purchased a Parallels Desktop 16 license, can I use Parallels Desktop 16.5 update on Mac with M1? 

Information

Yes, any license you purchased to use with Parallels Desktop 16 is valid with a Parallels Desktop 16.5 update. In other words, Parallels Desktop 16.5 is a free update for all Parallels Desktop 16 users. You can find your license key at Parallels My Account my.parallels.com.