cannot provision VMs after changing DNS setting

After provisioning a VM with:

dns {
  servers = ["10.2.137.1"]
}

I cannot provision any VMs. Independent of dns block presence in the plan. VM creation fails during terraform apply:

Error message:

#1: received an HTTP 400 response - Reason: Parameter verification failed. (name: invalid format - value does not look like a valid DNS name)

My config file (notice no 'dns' block inside 'initialization' block). VM creation still fails

resource "proxmox_virtual_environment_vm" "debian_12_homelab" {
  name        = "debian_12_homelab"
  description = "Managed by Terraform"
  tags        = ["terraform", "debian"]

  node_name = "pve"
  vm_id     = 222

  agent {
    # read 'Qemu guest agent' section, change to true only when ready
    enabled = true
  }
  # if agent is not enabled, the VM may not be able to shutdown properly, and may need to be forced off
  stop_on_destroy = true

  disk {
    datastore_id = "local-lvm"
    file_id      = "local:iso/debian12-homelab-qcow2.iso"
    interface    = "scsi0"
    size         = 20
  }

  initialization {
    ip_config {
      ipv4 {
        address = "10.2.137.11/24"
        gateway = "10.2.137.1"
      }
    }

  }

  network_device {
    bridge = "vmbr0"
  }
}

My setup:

Linux 6.11.2-arch1-1 kernel
opentofu 1.8.2-1/terraform-1.9.6-1 (tested both)
bpg/proxmox 0.66.1 (tested 0.64.0 too)

I set up bpg/proxmox provider with:

'terraform' user in PVE realm
SSH connection

What I did to resolve the issue:

clean reinstall of proxmox (then only added users, ssh keys, apt update && apt upgrade)
reinstall of terraform binary
cleared the whole directory of state files etc.
checked on a completely different host running Alma Linux 9

terraform DEBUG log dump: https://pastebin.com/KrmN5W55 log dump from /var/log/pveproxy: https://pastebin.com/jTYqD2yB

bpg / terraform-provider-proxmox

cannot provision VMs after changing DNS setting #1582