This is what worked for me.
My Windows RE partition was 508 MB but only had 86MB of free space, according to this article it should have 320 MB of free space. I used EaseUS Partition Master to increase the size of my partition to 800MB and now I've got 334,09MB of unused space on it. After that update went without any problems.
Edit: "For Windows operating systems later than Windows 10, version 2004 or Windows Server 2022, the partition must have at least 200 MB of free space."