This issue occurs due to the mis-handling of the creation of temporary snapshots when cloning a virtual machine. Ideally, when a powered on VM is cloned, a temporary snapshot is created. For a Windows VM, an extra child disk for a "writable" snapshot is created with the help of the Microsoft VSS (shadow copy service).
This is not handled correctly which causes the cloning of the powered on Windows VM to a cluster or datacenter to fail.
Resolution
This is a known issue affecting VMware vCenter 6.x and 7.x.
This issue is resolved in vCenter 7.0 U1c.
Workaround: To work around the issue, power off the virtual machine before the cloning operation.
Alternatively, take a VM snapshot and pass it as a parameter to Clone API.