Cannot pair apple watch to iphone (unable to check for update)

Hi,

I am trying to pair Apple Watch to my Iphone and the first step it requires me to update the apple watch. When it starts to check for updates, it fails and the error message appears:

Unable to Check for Update

Checking for a software update failed because you are not conencted to the internet.

Start Again | Try Again

The iPhone is connected to wi-fi that works fine.

I tried to reset the Apple Watch, hard-restart iPhone, logging out of Apple ID on iphone, changing region in iPhone - nothing works. Could you help me and explain what is the issue and how I can resolve it?

iPhone 7

iOS - 14.7.1

Apple Watch 5