Problem with online conflict resolution and editing

We have on premises gitlab 12.8. When we installed it (some versions ago, but we started with at least 11.0) all worked fine. But at some point two things broke, probably at the same time:

• We cant edit files in web editor, because on save (/commit) we get error 2:Rugged::IndexError: invalid data in index - invalid entry - same as here: 2:Rugged::IndexError: invalid data in index - invalid entry (#215437) · Issues · GitLab.org / GitLab · GitLab. It doesn’t work on any file in neither firefox nor chrome. I think only 1 project is affected but it is our most important one.
• Any conflict, no matter how small, is blocking merge. Before we could click some button (don’t remember exact label) to do merge online and gitlab usually managed to resolve trivial conflicts. Now we have to do this manually in console and since CI takes a lot of time, we can’t merge some topic branches for a few iterations. When doing the merge in command line git often doesn’t even report the conflict. It is (I think) similar to Some merge requests on gitlab.com have bogus merge conflicts (#1896) · Issues · GitLab.org / GitLab FOSS · GitLab but we never had such old version.

Is there something I can do to debug and fix this problem?

EDIT:
example:

1. I have file README.md: text/plain; charset=utf-8. It has 10 lines of text. No binary data (as far as I can see).
2. On branch A I added new first line.
3. On branch B I added new last line.
4. I pushed both branches to gitlab, created MR from B to A.
5. On MR “Merge” button is grayed out, with comment “There are merge conflicts” and “Merge locally” button. I don’t even have link to resolve online as shown in gif here: Resolving Merge Conflicts from the GitLab UI | GitLab
6. If I do local merge, no conflict is even reported

I am seeing the same problem. Has anyone found a resolution to this?

For me it turned out I did something stupid. I added git hook on server side. The script made git checkout inside bare git repo and created some files. After removing one of the files (don’t remember name, possibly something with “objects”) all started working again.

What pointed me in this direction was that when I duplicated the repo in gitlab, the duplicate worked fine (resolved conflicts).

It turned out that I made a foolish decision. I updated the server-side git hook of the alight motion. The script built a few files and performed a git checkout inside the bare git repository.