wsldhost.exe fails to run with admin previleges after update to windows 10 version 21H1

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wsldhost.exe --daemon fails to run with windows update to 21H1 (OS build 19043.1586)

I have created a windows shortcut with target "C:\pathto\wsldhost.exe" --daemon, and setup the shortcut properties->compatibility->run this program as administrator.
I do get the User Account Control message window, so it is running as admin. But then fails with the above error message.
It was working well before the windows update.