Unable to share folder with external users in SharePoint

I came across a strange problem with a client who was trying to share folders to external users from their SharePoint site.

The options were greyed out when a folder was shared, they were able to share files and even their entire site, however the folder options were greyed out:

To solve the problem, the site collection feature “Limited-access user permission lockdown mode” has to be disabled:

Once this feature was disabled, folder sharing was enabled again.

 

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