Hello again!
It sounds like this may be a firmware problem rather than a macOS issue if reinstalling macOS didn’t help.
Since the power button (Touch ID) is directly connected to your Mac’s logic board (its not part of the keyboard itself), the problem could be related to the firmware.
I'm not completely sure this is the problem, but just in case, I’d recommend using an app called "Apple Configurator" which reinstalls the M1 firmware. You’ll need access to a second Mac with a USB-C port for this process. If you don’t have another Mac available, Apple's Genius Bar can help you with this.
Let me know how it turns out!