I can confirm that restoring (or rather, reviving) T2 BridgeOS resolves the issue. I shall note, however, that restoring T2 BridgeOS is delicate and risky procedure. I personally had no issues whatsoever, but I've read multiple reports of failed procedure resulting into bricked hardware. If anything goes wrong, it guarantees a trip to Apple service as there's no DIY solution available. If that's your only or your main machine I strongly recommend waiting for subsequent build or even the GM where this issue will most likely be fixed by Apple. This being said, detailed instructions on reviving or restoring the BridgeOS can be found here: https://support.apple.com/en-gb/guide/apple-configurator-2/apdebea5be51/mac

The issue persists with dev beta 5. As suggested by dcas and rb69 this has something to do with BridgeOS update. Did anyone succeeded finding a workaround?

Thanks! I always keep FileVault turned on. Perhaps that triggers the error. Will try tonight and will report back!