As the title says, I was confused for a very long time because in Linux (X server only-not wayland) whenever I snapped a window on the screen edge inside the vm, it caused this area to become unclickable. E.g. even if I moved the window, I was not able to click anything on that area!. xprop showed this when inspecting the unclickable area which doesn't seem normal: └─$ xprop XdndAware(ATOM) = undefined atom # 0xa240e6ff XdndTypeList(ATOM) = text/uri-list, TARGETS, MULTIPLE _MOTIF_WM_HINTS(_MOTIF_WM_HINTS) = 0x2, 0x0, 0x0, 0x0, 0x0 After digging around a little bit, I remove the /etc/xdg/autostart/prlcc.desktop file. This prevents /usr/bin/prlcc from auto-start. Issue got resolved, although now I cannot copy & paste between the VM and MacOS. If I want to copy paste something I have to manually start prlcc and then force kill it again. I am leaving this here for anyone else who might be having the same issue. Parallels team, PLEASE FIX THIS!
Can confirm. Seeing this same issue with Parallels Desktop 20 Version 20.3.1 (55959) and an ArchLinux Xorg guest. Huge thanks to @IoannisK3 to identifying the issue and providing that workaround. It it making my system unusable.
Hm, there was a 20.3.2 (55975) release right now -- the problem hasn't shown itself (yet). Maybe it was fixed?