YubiKey works in Windows 11 ARM VM except in iCloud

[OurO]

YubiKey works in Windows Security Key Management and authenticates Apple Account successfully in Brave inside the VM. But in iCloud for Windows, after entering the password and reaching “Use one of your security keys,” clicking Continue only causes the dialog to flash briefly and return (see attached screenshot). YubiKey has been explicitly connected to Windows through Parallels USB.
Windows 11 ARM VM on Apple silicon.
iCloud for Windows 15.8.118.0 x64.
Parallels® Desktop 26 for Mac (Standard Edition) Version 26.4.1 (57516)