Sometimes there are glitches after updates. Here’s as few things to try...
Try toggling that Touch ID option a few times off/on/off/on
Restart your Mac
Restart your Mac in Safe Mode (Safe Mode performs maintenance routines, clears caches, and disables all third party add ons.) If the issue cleared then restart in normal mode and test.
Start up your Mac in safe mode - Apple Support
If nothing helps then report your issue to Apple. We here are just fellow users.
Feedback - macOS - Apple
Finally, if it is an actual bug you may have to wait for an update from Apple. I personally use Touch ID to unlock my Mac Studio and it was working fine on macOS 15.7 before I updated to macOS 26 Tahoe. So it’s not a universal issue.