Solution:
As noted in reference https://learn.microsoft.com/en-us/answers/questions/1168568/error-credentials-supplied-are-not-sufficient-when (Don Baker comment), the solution is to add the credential in the windows credentials first, then add the printer. That way it doesn't prompt you to log in with said credentials, because that doesn't work on Windows 11.
For some reason, local users in Win11 are handled differently to Win10 and the prompt can't be properly save your credentials to the windows credentials box. Instead, you just save the credential for that particular resource (in my case a printer on a printserver) and add the printer in a step aftwerwards.
- open Control Panel > User Accounts > Windows Credentials. Select Windows Credentials, then select Add Windows Credential.
- Fill out the fields (server name, user name, password) and click OK.
- Add printer, if printer is on said printserver you just saved a credential for, it automatically connects with it - no prompts appearing.