After spending an evening searching for a solution, I think there are 2 problems:
1) MacOS allegedly does not support USB Wireless Adapters (because of Apple). There are some solutions for Intel Macs, but those do not work on Apple Silicon. This could partially explain why the adapter showed up only as a USB Disk.
2) There seem to be no USB Wireless adapters with Windows ARM64 drivers. Those who advertise Plug n Play functionality usually have drivers bundled on an integrated flash drive and looking at multiple USB dongles who provided drivers on their web page, all of them had only x64/x86 drivers - no ARM64.
I think we would need a dongle that does not have the "flash drive" partition with a built-in driver, behaving the same way as the legacy USB dongle I have, but at the same time it would have to provide drivers for Windows ARM64. I have not found any adapter that would meet the criteria.
So in my case I solved it by using a wired connection for my Mac, then binding my integrated Wi-Fi adapter to Parallels VM. A bit cumbersome, but it allows me to stay connected to the Internet while also being connected to an offline Wi-Fi AP which is what I needed.