That is rather strange. That shouldn't have worked. I don't recall reading anyone else being able to do so.
One of the methods of restoring a Carbon Copy Cloner backup now involves installing onto an external then migration from the CCC backup. When one of my earlier attempts at doing this as a test failed at the install stage, I emailed Mike Bombich, maker of CCC about it, and he replied that it had worked for him (but he was also getting other failed reports like mine). He specifically said that he had
not used Reduced Security on his M1 Mac.
I suspect the reason you haven't heard of anyone else being able to do so is that most of us who have been investigating this have been doing it using Reduced Security as one of the first things to try. We now know that Reduced Security did not work, so other things have been done. Having succeeded by doing other things, they have not gone back and tried it with Full Security as I have just done.
I now know that the key factors in my successes was been direct connecting to the MBA (not via a dock) and using a bootable USB installer. I have done A-B-A tests to confirm that the direct connection is essential but I haven't done the same for the bootable USB installer, so a Recovery install might work now.