HugeRTE dropdowns appearing behind Angular Material Dialog after v21 migration

I have recently migrated my project from Angular 17 to 21. I have several instances where i have a dialog (from Angular Material) with a text editor from library @hugerte/hugerte-angular. After migration formatting dropdowns from the text editor appear below the dialog so it is impossible to click them. I have tried setting different z-indexes on different elements but nothing works and I don't see any options for it to work.

One 'nuclear' fix is to add this to my app.config.ts

{ provide: OVERLAY_DEFAULT_CONFIG, useValue: { usePopover: false } }

but it's not a very elegant solution.

I have created a StackBlitz with my case which is a direct fork from official MatDialog component: https://stackblitz.com/edit/2uhccuct?file=src%2Fexample%2Fdialog-overview-example-dialog.html

Let me know if I need to provide more information on the subject.