Nuxt 3.6.2 Issue
If you look at the submit function in pages/login.vue, you see that there is an await refreshNuxtData call. That should fire off a fetch request to /api and proceed to set a logged in state which will cause the page to redirect. The redirect logic is in plugins/auth.ts, however I don't believe the executing code ever reaches that file.
The ssr: false configuration must be set for this issue to happen. Also a full server restart (CTRL-C) must happen to see the effect of changing this setting.
The offending commit appears to be from nuxt/nuxt#21823.