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I came around the issue when I created a new type of workspace (the one that doesn't create a corresponding O365 group). I've created a new report by importing data. Then I created a new report that is sourced from that PowerBI dataset located in the workspace and I'm getting Internal Server Error when publishing the report.
"An error occured while attempting to publish "Report.pbix": The remote server returned an error: (500) Internal Server Error"
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