First of all, remove the '.Net 3.5 runtime' feature from 'Server Manager' and restart the server.
Then install the feature by following these steps:
Step 1) Create a volume based on the public snapshot of the Windows server 2016 installation media
Step 2) Attach the volume in 'Elastic Block Store' -> 'Volumes'
Step 3) Run 'Disk management'
Step 4) If the disk is marked offline due to 'a policy set by an administrato', do the following in CMD:
Then follow these instruction as outlined here
In Server Manager, choose Manage and then select Add Roles and Features to start the Add Roles and Features Wizard.
On the Select installation type screen, choose Role-based or feature-based installation.
Select the target server.
On the Select features screen, check the box next to .Net Framework 3.5 Features.
On the Confirm installation selections screen, a warning will be displayed asking Do you need to specify an alternate source path? If the target computer does not have access to Windows Update, use the Specify an alternate source path link to specify the path to the \sources\sxs folder on the installation media and then choose OK. After you have specified the alternate source, or if the target computer has access to Windows Update, click the X next to the warning, and then choose Install.