RLS - Provision Access Using Group of Type 'Microsoft 365'

We currently grant access to a variety of workspaces using AAD groups of the type 'Microsoft 365' and that works as intended. However, when attempting to apply RLS using said group, the AD entry is not found and we receive the following error: 'One or more email addresses could not be validated: {email}'.

Workspace access is granted to a large group of users but we have one report that a subset of those users should have access to. The idea is to use RLS to restrict users access to the underlying dataset to accomplish this. Is there a limitation on what type of AD groups can be used for provisioning RLS? Additionally, are there any alternatives for breaking the inherited workspace access for a particular report?

Thanks in advance!