2602218 - PrincipalPropagation authentication is only supported in destinations with CloudConnectorVersion set to '2'

When using PrincipalPropagation authentication, the configured destination in the SAP Cloud Platform fails with:
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Caused by: com.sap.core.connectivity.apiext.impl.validation.DestinationValidationException: The following errors occurred while validation of destination: The PrincipalPropagation authentication is only supported in destinations with CloudConnectorVersion set to '2'.
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• SAP Cloud Platform
• SAP Cloud Platform Cloud Connector
• Release Independent

Production ABAP R/3 ERP SRM CRM ERP PPM SEM APO XI PI PORTAL Test development QA KBA On Premise HANA Database SAP Cloud Platform Cloud Connector xsodata On-Premise Access Control HANA DB Cloud to On-Premise HTTPS connection ABAP com.sap.scc.rt SccEndpointValidator PrincipalPropagation DestinationValidationException , KBA , BC-CP-DEST , Destination service , BC-NEO-CON , Neo to On-premise Connectivity service , Problem