The issue was caused by an unsupported or improper TEP connectivity configuration within the collapsed cluster deployment.
According to the Broadcom KB, Edge TEP and ESXi host TEP interfaces can share the same VLAN only under specific supported configurations, including:
In this case, the Edge VM was configured using dVS port groups in a collapsed cluster scenario, resulting in BFD tunnel establishment failure despite basic IP connectivity being operational.
Reconfigure the Edge VM TEP interfaces to use NSX VLAN segments instead of standard dVS port groups.
This aligns the deployment with supported NSX design guidance and allows proper BFD tunnel establishment between Edge and host TEPs.
Additional consideration:
Reference KBs: