You can fix this issue with any of the below solutions:
- Don't manage the Chrome browser with Google Workspace Admin.
- When the Chrome browser is managed with Google Workspace Admin, don't turn on the setting to have the cloud policy override the local policy.
- Add an entry in the registry editor as shown below:
- Go to HKEY_LOCAL_MACHINE\SOFTWARE\Policies\Google\Chrome.
- Add "CloudUserPolicyMerge" with a value of "1."
NOTE: The entry in the registry editor allows local extension install requirements to be applied, in addition to cloud requirements.