After this video was posted, thanks to contributions of users in comments below, the real solution to this issue has been established. This happened due to not following installation steps accurately, or because of turning knob or other components before installation. Here are the steps to solve it if you have the same issue:
– Enable the “Lock and Leave” feature
– Turn the knob to unlocked position
– Take off the indoor part of the lock by unscrewing to bolts
– Set the knob to vertical upright position as shown on the inside of the lock
– assemble it back with knob still upright.
Then everything workes fine