Unable to unlock Mac Studio M2 (14.5) with apple Watch

Hello, 

I set up the watch to unlock mac via System Settings>Login Password and activated the watch option to “Use Apple Watch to unlock apps and your Mac.”

I checked the my Wifi & Bluetooth are open & I have two-factor authentication turned on (I saw this requirements in Apple guides).

The watch does reacts when I need the Apple ID password but will not get active for anything else including Unlock my computer. 

I tried various actions, like restart everything, turn off and on but nothing helps so now it looks to me like a bug.

Any idea?

Thank you,

Shlomit