Can't add locally stored music to playlists in Apple Music

Hello.

I have always used iTunes without any issues, but I recently switched to an M1 Mac Mini (16GB), moving from 10.13.6 High Sierra to 11.2.2 Big Sur. Being on Big Sur, I don't use iTunes anymore, but Apple Music (which I used as a subscription for months now).

I have no problems with the app, streaming wise, but I cannot add my locally stored music to the playlists I created. It is not a matter of files of formats as all the files I'm adding were converted to M4A, and most of these were originally purchased via the iTunes store without having been converted in the first place; also all of the files play normally with no issues if I just open them with Music.

The problem is that after creating a playlists I cannot drag the music from the finder into it, it just does nothing. I hit command + N, name the playlist and upon dragging the music files into it, from the finder, nothing happens...

I don't understand what's going on, especially given how I never experienced this issue with iTunes.

Considering the fact the main reason I use an Apple Music subscription is the amazing iCloud library feature, and the fact 50% of the music I listen to is stored on my computer, this is severely impairing my use experience.

I tried rebooting the computer, rebooting apple music, disabling and re-enabling the sync library but nothing.. I cannot add music to my playlists (I tried also with Mp3s).

Do you have any ideas? Thank you.

Device:

Mac Mini M1 16GB Late 2020

MacOS 11.2.2