"Authentication is disabled" for touch ID & password (Apple Watch)

When attempting to allow my Apple Watch to unlock my Macbook Pro, after typing in my correct password and clicking Unlock, I get "Authentication is disabled" on the dialog box and of course the unlock feature is not enabled. I'm using a 2020 MBP (quad-core Intel Core i5) running Sonoma 14.6.1. What is happening here? How do I resolve it? Thanks!