green outline border on desktop mac and can't space

FWIW, your signature indicates you are running Ventura, not Monterey where you've posted. If so, open System Settings > Accessibility > Keyboard and make sure "Full Keyboard Access" is disabled.

Start with this of M1 or M2 Mac...

On your Mac, choose Apple menu  > Shut Down.

Wait for your Mac to shut down completely. A Mac is completely shut down when the screen is black and any lights (including in the Touch Bar) are off.

Press and hold the power button on your Mac until “Loading startup options” appears.

Select a volume.

Press and hold the Shift key, then click Continue in Safe Mode.

The computer restarts automatically. When the login window appears, you should see “Safe Boot” in the menu bar.

Restart normally.

Start with this if IntelMac...

Safe Boot, (holding Shift key down at startup), does the problem occur in Safe Mode? Could take 10 minutes or more.

Safe mode attempts to repair Disks & clears lots of caches & loads safe Drivers, & prevents loading of 3rd party extensions, so if Safe Mode works try again in regular boot.

My version of the problem was blue rather than green. I have Ventura and dialabrain's solution seems to work.

A similar issue was I have Webroot on my Mac (transferred from a PC) and Dictation won't work unless Webroot is disabled (checkoff "Pause Security Keyboard Entry." Another squirrelly matter). Still quite glad I made the switch, though.

HPB

Just to add, if you are in Monterey, the setting is in System Preferences > Accessibility > Keyboard, in the Navigation tab.