Touch Bar shows virtual ESC and CLOSE (X) buttons on am MBP with physical ESC key

Since buying the newer MBP with physical ESC I started experiencing this issue: at some point (randomly) the touch bar would display a "close" (X) virtual key and ESC key instead of the row of function keys (or app controls) and you have to hit the (X) button to close this empty line with a virtual ESC on it. See the photo attached.

I searched everywhere to turn it off / disable / reconfigure to no avail.

Normally it shows the row of FN buttons but dozens of times a day, especially after unlocking the screen it craps out with this nonsense (see below).

Any ideas?

UPDATE: I managed to reproduce it pretty easily: lock your MBP, then unlock it and switch from one app to another: touch bar will "flicker" and switch to this weird mode. Sometimes you don't even have to switch the apps, it will switch to that mode by itself upon unlocking. See the video: https://youtu.be/r2xvUrFdqq4