OneDrive Duplicating Files in Group Containers

I use OneDrive per company policy to backup Design files. I keep all my files online and only download as needed. Has worked for 3 years no issues.

Then I had one of the usual issues that some files are not syncing, blah blah blah. In trying to fix it, things fell apart, life sucked for 3 whole days. I have reset and reinstalled the OneDrive app and now I noticed my HD space is gone! As you all know, there is a folder inside Library > Group Containers that seems to have duplicates of all my files that are on the cloud, 559GB!! (even through they take this much space, they are non-functional files, you can't open them).

I daringly deleted that folder and reset OneDrive and no luck, folder got recreated again in seconds. Maybe it never deleted. I have OneDrive set to only download files on demand.

Anyone figured this out yet?

Apple M1 MacBook Pro with Ventura 13.1