Additional features, settings, or issues not covered by specific Microsoft Teams categories
Thanks Thomas. Our GPO team initially told that there is no GPO deployed for same. After investigating myself we found that there is a GPO policy pushing classic Teams "Teams" as DefaultIMApp.
Disabled the GPO and this resolved the issue.
Others you can run below command to get the client machine's applied GPO list and find the culprit policy.
cmd:\> gpresult /h c:\temp\gpresult.html