My Preview apps in MacBook Air M4 cannot open PNG files

I have been having this issues for about 2-3 weeks. This MacBook was purchased on 7th July, and afterwards I don't think I had a major software update recently. (It's running Sequoia 15.6.1 right now)

So after I take a screenshot, it allows me to see the preview, copy it and paste it elsewhere. But when I want to try to copy or open the file in my Screenshot folder, it shows this message: PNG may be damaged, could not be opened.

This is not happening with other file formats: JPG, PDF, and other files (I usually press spacebar for quicklook and it works with other files, but not PNG). I usually work with lots of screenshots, so it is an annoying issue, although for the copy paste I can still work around it (as long as the screenshot preview can be accessed, copy and paste are still doable).

I have tried entering Safe Mode and the problem still persists.

I haven't tried reinstalling the MacOS but hoping that I don't need to do that.

Please advise what can be done at this stage. Thank you!

[Edited by Moderator]