"sf project deploy start" failing with MetadataTransferError - "Metadata API request failed"

[haidernaseem]

Summary
I recently updated the sf CLI version in my Gitlab pipeline to '2.105.6'. Since the update I am facing an odd issue.
The pipeline runs the following deploy command

cd $(SALESFORCE_DIR) && sf project deploy start --source-dir $(CI_BUILDS_DIR)/cicd/delta/ --json --ignore-conflicts --target-org $($(SF_USERNAME_DEVELOPER_SANDBOX)) --wait 60 --test-level RunLocalTests; \

and the deployment in Salesforce starts, runs, and succeeds. But as soon as the deployment in Salesforce has completed, the pipeline throws the following error:

{
  "name": "MetadataTransferError",
  "message": "Metadata API request failed: The filepath \"../../../../../../../cicd/delta/PRMPortal/force-app/main/default/applications/prm_RegionalManager.app-meta.xml\" contains unsafe character sequences",
  "exitCode": 1,
  "context": "DeployMetadata",
  "data": {
    "id": "0Af9n00000FqEavCAF"
  },
  "stack": "MetadataTransferError: Metadata API request failed: The filepath \"../../../../../../../cicd/delta/PRMPortal/force-app/main/default/applications/prm_RegionalManager.app-meta.xml\" contains unsafe character sequences\n    at SfCommandError.from (file:///usr/local/lib/node_modules/@salesforce/cli/node_modules/@salesforce/sf-plugins-core/lib/SfCommandError.js:39:16)\n    at DeployMetadata.catch (file:///usr/local/lib/node_modules/@salesforce/cli/node_modules/@salesforce/sf-plugins-core/lib/sfCommand.js:323:47)\n    at DeployMetadata.catch (file:///usr/local/lib/node_modules/@salesforce/cli/node_modules/@salesforce/plugin-deploy-retrieve/lib/commands/project/deploy/start.js:276:27)\n    at DeployMetadata._run (/usr/local/lib/node_modules/@salesforce/cli/node_modules/@oclif/core/lib/command.js:185:29)\n    at async Config.runCommand (/usr/local/lib/node_modules/@salesforce/cli/node_modules/@oclif/core/lib/config/config.js:456:25)\n    at async run (/usr/local/lib/node_modules/@salesforce/cli/node_modules/@oclif/core/lib/main.js:97:16)\n    at async file:///usr/local/lib/node_modules/@salesforce/cli/bin/run.js:15:1",
  "cause": "undefined",
  "warnings": [],
  "code": "MetadataTransferError",
  "status": 1,
  "commandName": "DeployMetadata"
}
make: *** [Makefile:163: deploy-developer-sandbox] Error 1

I have added the following command to the makefile to see the folder structure :ls -R $(CI_BUILDS_DIR)/cicd/delta/
and the output does not show any apparent issues with the file path.

I tried adding the applications folder to .forceignore to validate if the issue was with the application folder. But then the same error came for the class folder.

I am completely lost as what to do to fix this. I am blocked from merging from sandbox to higher environment until the pipeline is fixed.

Highly appreciate any help and suggestions.