System running out of memory Mac M1

As BOBHARRIS said you will need to clean up your SSD. That KernalTASK with high memory usauge typically means its having to use SSD to create SWAP files... Also if you notice KernalTask is increasing utilization with CPU then that likely means your overheating the system. Go to a cooler room so the system is not throttling.

Also, I recommend to only run FinalCut pro on any system with 16gb of memory. Even with unified systems like M series you should dedicate that machine to only editing video. Try to using your iPhone or another PC to multitask on.

Quit all processes like VTDecoderXPCService, Dropbox, Pages, CleanmyMAC, WhatsAPP, etc, while using FinalCut Pro. You should be okay text editing or opening one Safari Tab. But you really want that machine to dedicate it self to the video editing. (Hit: APPLE + SPacebar - Type: "Activity Monitor" and press enter)

Also, you should buy an external HD likely SSD to save your internal SSD performance and space. Just remember that the more connected hard drives the slower it will become.

Editing video can use quite a few resources on any computer. Its one of the main factors for many computer users to buy super expensive work stations like AMD's Threadrippers or Apple's Ultra series. 16 gb of main memory really is not enough these days for professional video editing.

Keep that main memory free and you should be good and your Macbook should last a life time.

It is unusual for the kernel_task to consume that much memory, unless you have some 3rd party kernel extension installed.

There are 2 reasons for the "Your system has run out of application memory" dialog box.

NOTE: You have already done most of this, but review the following, as it may help.

A) Your boot disk has very low free storage, and macOS cannot create page/swap files to offload virtual memory contents to disk. If you do have very low free storage, it might apply. Depending on how much virtual memory is being called for, anything under 50-100GB of free storage may trigger the message.

Apple menu (upper left corner) -> About This Mac -> Storage (tab)

B) A process (or set of processes) has asked macOS for excessive amounts of virtual memory address space.  Virtual memory address space requires macOS to create Virtual Memory Page Tables in non-pageable kernel address space to keep track of the application virtual addresses given out.  Generally, if there is a memory leak (process asks for a virtual address range, uses the addresses, forgets to give them back, asks for another virtual address range, uses the addresses, forgets again, wash, rinse, repeat), eventually there are so many non-pageable virtual memory page table entries trying to keep track of the virtual addresses, that macOS no longer has memory available for applications, and you get the "Your system has run out of application memory"

If you look at 

Applications -> Utilities -> Activity Monitor -> View (menu) -> All Processes -> Memory (tab)

you can see what processes are using lots of memory.  Many of these processes will NOT be applications. Just background agents and daemons used to provide many of the macOS services, as well as 3rd party background processes doing whatever that 3rd party app thinks it should be doing.

Also keep in mind that each web browser tab will be a separate process running its own Javascript.  If you have lots of browser tabs open, or if one of the browser tabs running Javascript with a bug in it, it is possible these browser tabs will add up to a lot of virtual memory demands, but no individual tab will look all that big.

As BOBHARRIS said you will need to clean up your SSD. That KernalTASK with high memory usauge typically means its having to use SSD to create SWAP files... Also if you notice KernalTask is increasing utilization with CPU then that likely means your overheating the system. Go to a cooler room so the system is not throttling.

Also, it recommended to only run FinalCut pro on any system with 16gb of memory. Even with unified systems like M series you should dedicate that machine to only editing the video. Try to using your iPhone or another PC to multitask on.

Quit all processes like VTDecoderXPCService, Dropbox, Pages, CleanmyMAC, WhatsAPP, etc.. etc...

Also, you should buy an external HD likely SSD to save your internal SSD performance and space.

Editing video can use quite a few resources on any computer.