In the presence of DLP, performing a move or cut-paste file operation from one OneDrive sync location to another OneDrive sync location, we see that the file is synced to the web location but also remains on the disk even when 'Free up disk space' setting is in place.
Initially, the files are present in the OneDrive Cloud as indicated by the cloud icon in the Status column of Windows Explorer. The status is updated when the files are moved, it does not return to the same cloud icon as you'll see here in this example:
DLP Endpoint Agent and OneDrive Cloud.
When the user initiates the file move operation internally, the file rename API is triggered. DLP monitors the file rename operations that are moved/cut-pasted from one location to another, which is happening in the context of the explorer process. We just read the first few bytes of information to retrieve the file's signature, and the file gets downloaded on the disk drive.
This would happen when any software application tries to read the content of the file.
This is similar to opening the file from the OneDrive sync location (without DLP) and closing it, which does not revert the status of the file and occupies the disk space.
Based on the above analysis, this appears to be a OneDrive behaviour, where when any application tries to read a file from the OneDrive sync location, the status of the file gets changed (from cloud symbol to tick-mark) and does not revert when the file is closed (to cloud symbol again), even if no modifications are made to the file.