I applied some fixes such as removing backup from configuration, rescan of scale out repository, run an active full, exclude the VM in question from backup job, perform a quick backup of the VM in question reboot of repository server but nothing worked. I created new job and am keeping the data from old job for restoration. I have plenty of resources on the servers so I am sure that's not the issue.
This is not a pleasant experience, 1 VM backup file corruption leading to corruption of whole job. I believe there can be a database fix for this.