can no longer share documents and SharePoint sites/lists/... with groups

Question

We use security groups to manage permissions in SharePoint. Our security group 1 for example would have access to site A and B and a security group 2 would have access to site B and C. However, when I try to add a security group now, they do not show up in the search box. I have tried adding M365 groups as well, but the same result. I have used both the permissions pane and the advanced permission settings. I have done this multiple times in the past and groups that have been added before still show up in the permission list. What did I miss?

I also notice that I cannot share individual files folders with groups either.