My iPhone 16 pro won't allow my new Apple watch series 10 to be set-up due to 2 factor authentication disagreement

During set-up using the iPhone, I get to a point where I receive the screen message "setting up Apple Watch requires the latest account security. your account security needs to be upgraded to use two-factor auththentication, and you need to create a passcode for this iPhone". When I select "continue" it says "updating acct security", the takes me back to the first screen message (vicious loop!).

In looking in my Apple Account, I find that two-factor is already enabled and I do have a passcode set-up for my iPhone. Things I have tried: restarting iPhone, turning off do not disturb, triple checking that two-factor is actually enabled in my Apple Account. I am at a loss on how to rectify this issue.