I just got off the phone with the technician. At first he says the problem is because my OneDrive is in Documents, and told me that the issue will be resolved if I moved it out of Documents. You can try that if you'd like, although that is not the real issue and is not a sustainable solution.
OneDrive has been in Documents since 2018, as it was the default location set by Microsoft in the installation process. I sent them a screenshot showing the timestamp of the folder creation (Jan 29 2018).
I told him I'm not moving the folder location since it was
a) the default installation location set by Microsoft themselves and
b) what if next week Microsoft decides that the User folder - the current default installation location - is now an 'essential' folder which cannot be unsynced anymore and we have to move everything yet again? I'm not going to relink everything every time someone at Microsoft decides to fiddle around with backend settings.
I asked him to figure out who did what in the past week and to restore OneDrive to its full functionality as of August.
He is now escalating the issue to the Engineering department. I will post an update when I get one.