I realized that I don't have the Layout option under Styles menu in the Editor. I found out later that I have a bare minimum theme.json. And adding appearanceTools: true field cause it to show up. My theme.json became:

{
    "version": 3,
    "$schema": "https://schemas.wp.org/wp/6.6/theme.json",
    "settings": {
        "appearanceTools": true
    }   
}