Thank you for feedback Pmalek! I never share biometric data, so that is almost certainly the cause of my issues. I was wondering why other people could generate wallet offline without any problems while I couldn't.
They probably didn't even consider that part crucial to the wallet creation process. I don't know why it matters either. I see no reason why I shouldn't be able to generate a new seed offline if I use PIN as my security instead of biometrics. It's not a protocol-level requirement. It's a weird decision made by Blockstream or maybe even an oversight or bug on their end.
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Earlier today I tried to install fresh copy of Blockstream Green to generate new wallet, but I didn't get option to share biometric data.
I never did set up any biometric data on that phone (fingerprint sensor nor face unlock) so that could be the reason why Blockstream Green didn't ask me to share biometric data, because there were not any in the first place.
After that I did factory reset on phone again, and this time I did set up fingerprint sensor. After downloading and installing Green wallet I turned off wifi, bluetooth and went into airplane mode. This time Green asked me to share biometric data and there was no problem generating new wallet.
Usually I'm not comfortable sharing my biometric data, as it could leak who knows where, but in this case I was too curious to see if it will work.