Word can’t publish blogs with pictures after upgrading WordPress to v 5.3.2

After upgrading to WordPress 5.3.2, Microsoft Word for Office 365 (build 16.0.12624.20148) errors with “Word cannot publish the pictures in this post. The provider where you are trying to publish is not available”. Microsoft support suggested I contact WordPress support for help resolving this issue.

Steps to repro:

1. Create a new blog post document in Word.

2. Insert a picture.

3. Publish as a draft to WordPress.

The interesting thing is that the blog gets actually published and the picture gets uploaded to the WordPress Media Library, but the picture is not inserted in the blog. My account settings are:

1. https://<domain>/xmlrpc.php

2. I use admin account

3. Picture options is set to “My blog provider”

Any idea how to troubleshoot this? It used to work prior to the WordPress upgrade.