"The virtual hard disk can not be compacted. This may be because the virtual machine has Undo Disks option enabled or the hard disk is used in snapshots."
Undo disks are not enabled, and there are no snapshots in the snapshot manager.
Snapshots.xml contains the following XML and the Snapshots/ folder that once contained the snapshot data was removed by Parallels when I deleted all snapshots:
<?xml version="1.0" encoding="UTF-8"?>
<ParallelsSavedStates xmlns:xsi="" vm_uuid="" xsi:noNamespaceSchemaLocation="" />
It is an Expanding disk and is the boot volume. A secondary volume compacted without any trouble.
I tried compacting from both Parallels Tools and the Mac host tool.