Solved in my case. After I followed these steps.
Context: I use a M2 Macbook Air. Office 365 Family subscription. I am not the owner of the subscription, but a part of the family member. Someone in my 365 family shared some folders with me. I added those shared folders as links to my drive (in OneDrive online). They used to work fine as folders on my system, but for the last month or so, they used to show up as links, instead of folders on my system.
Today I saw that OneDrive app received an update and was updated already 3 days ago on my system, but the issue persisted.
OneDrive app version: 25.051.0317.0003
Steps I followed to fix this:
- Synced my entire OneDrive with the cloud (screenshot below)

- Unlinked my account from my mac. Left-click OneDrive icon from menubar -> click gear icon (help & settings) -> click "Preferences" -> click "Accounts" -> click "Unlink this mac"
- Went to OneDrive online (using my browser -> onedrive.live.com) -> removed all folder shortcuts. Added them back. NOTE: This step may be redundant. I skipped this step before, but that did not solve it the last time. This could be because this is a crucial step, or that MSFT actually solved the issue with this recent update. I am clueless.
- Logged into OneDrive app again on my mac, and waited for the first time sync. Once the sync was done, everything was working fine.
Hope this helps.