Mac not unlocking after watchOS 7 update

Interesting… I got it working again…! Here’s how.

The steps are generally the same as those described by @stoska992, but, here and there, I had ti add additional steps:

1. Prerequisite: your Watch must be on any version earlier than WatchOS 7, or on WatchOS 7.1. Your iPhone must be on iOS 14.2
2. Prerequisite: please verify that your Watch is in bluetooth range of your phone, and that it is connected to the same WiFi network as your Mac and your phone (mine wasn’t, for some reason). Note that, for your Mac, it doesn’t matter if it’s connected by cable or over WiFi, just as long as it’s part of the same network. If your doing the procedure for the first time, continue to step 6, if not, continue with the next step.
3. Head to System Preferences > Security and Privacy
4. Click the padlock and enter your Mac’s password
5. Disable ‘Use your Apple Watch to unlock apps and your Mac' (wording may be different)
6. Open Keychain Access
7. If this is your first time doing this procedure, go to the View menu and select Show Invisible items. If this isn’t your first time, you can skip this step; Keychain Access will have remembered the setting.
8. Search for AutoUnlock and delete all entries that appear. They may or may not reappear instantly; if they do, this is of no influence.
9. Search for Auto Unlock and delete all entries that appear (mind the space!)
10. Close Keychain Access
11. In Finder, press Command + Shift + G and paste the following path in the dialogue box that appears: ~/Library/Sharing/AutoUnlock/
12. Delete all files in this folder and close its window
13. Shut down your Mac
14. On your Mac’s keyboard, locate the following keys: Command + Option + P + R. Press and hold all of them upon turning your Mac back on
15. If your Mac has a chime at boot, keep holding the keys until you hear it twice. If your mac doesn’t have a chime, holding these keys at power-on will cause it to turn back off. This is normal. In this case, when your Mac has turned off, release the keys and turn it back on. Let it boot normally.
16. Verify once again that A) Your Mac, iPhone and Apple Watch are on the same network and B) Your iPhone and Apple Watch are in bluetooth range of one another.
17. Head back to System Preferences > Security and Privacy and authenticate
18. Make sure your Watch and iPhone are awake/unlocked. On your iPhone, you may want to enter any app to make sure that it stays awake long enough.
19. On your Mac, in System Preferences, check 'Use your Apple Watch to unlock apps and your Mac’, and make sure it does turn on. The first attempt may fail due to a bug in macOS. If it does, try again straightaway. Your second attempt should be successful.
20. Either close System Preferences, or head back to the main panel. If you closed it, reopen it. Head back to Security and Privacy to verify if the option is still checked (for some reason, it could have disabled itself again). If it is still checked, you should be done. Try putting your Mac to sleep, wait a couple of seconds and wake it. If things worked out, your Watch should let you in.