Resizing the Recovery partition to 750 MB resolves the issue. That applies if you use the Windows-default winre.wim.
KB5028997: Instructions to manually resize your partition to install the WinRE update - Microsoft Support: https://support.microsoft.com/en-us/topic/kb5028997-instructions-to-manually-resize-your-partition-to-install-the-winre-update-400faa27-9343-461c-ada9-24c8229763bf
For OEM-supplied winre.wim (which has additional drivers and packages), ensure the Recovery partition's size is atleast 100 MB more than the size of the custom wim.