Service Principle query endpoint - Failed to create or update SQL user from external provider.

We have created Service Principal that connects to SQL Endpoint (Lakehouse) and queries data for various reports. Service is running via Python using ClientSecretCredential to get token. And this process runs smoothly for year at least. This night it started to fail with - "timeout". 

But when investigating, I came to conclusion that issue is elsewhere - Failed to create or update SQL user from external provider.

What I have done:

1-Renewed Service Principle to extend expiration date

2-Created completely new Service Principle, assigned same role, access rights

3-Removed existing Service Principles, and added back again same ones.

4-Tried to sync back and forth Lakehouse.

5 - created new Capacity, assigned Workspace to it to force full security sync.

Still same SQL error and in SQL endpoint still Failed to create or update SQL user from external provider.

Same Service Principle can access and queries other Lakehouses in other workspaces, also it can query different Lakehouse in SAME workspace where main Lakehouse is throwing error. So Service Principle can access, environments, Lakehouses except this one!

No issues when accessing with SQL client (like dbeaver, ssms)

Is there a solution for this?

So PY runs job - >ClientSecretCredential for ServicePrincipal - > sql endpoint lakehouse ->fail