Unable to update imap mail password - incorrect email address

Hi there, I'm getting a bit frustrated and am unable to find any solution.

I use mail app to access emails in my gmail account. Since I need to access more aliases, so I'm accessing it as a generic imap mail account (not gmail specific account). In my google account the two step verification is enabled, which is why I'm using app specific password for the email on iPhone. It was working like this until tomorrow when I changed my mail google password, which disabled all app specific passwords. So I generated a new one in my gmail account and tried to update it on my iphone. When I try to do that though, the iphone says the email address is invalid - I didn't change anything except the password - any ideas what could be the cause?