Build fails with the error "Picked up JAVA_TOOL_OPTIONS: -Dfile.encoding=UTF-8" when project has a custom Manifest

1. Open the attached "NotchSafeAreaSample.zip" project
2. Go to File > Build Settings
3. Make sure that the Android Platform is selected
4. Build and Run

Expected result: Build is successful
Actual result: Build fails with a failure message:

A failure occurred while executing com.android.build.gradle.tasks.ProcessLibraryMAnifest$ProcessLibWorkAction

and errors:

Picked up JAVA_TOOL_OPTIONS: -Dfile.encoding=UTF-8

CommandInvokationFailure: Gradle build failed. 

Reproducible with: 2022.2.0a18, 2022.2.0b3, 2023.2.0a4
Not reproducible with: 2020.3.37f1, 2021.3.8f1, 2022.1.12f1, 2022.1.12f1, 2022.2.0a17

Notes:

• Workaround for the issue is to add in the 4th line of "AndroidManifest.xml"

  android:exported="true

• Tested on MacBook Pro, Chip Apple M1 Max