Nginx server under load balancer, when /folder is found redirects to /folder/ but changes the host url

I have nginx server setup in google cloud. Server is being accessed from a host domain through gcloud pointing.

Like this:

https://server.com/test/ points to instance group with one of instances with ip http://39.99.99.99.55/project/

And everything works well unless, you enter

https://server.com/test/folder without the leading slash

When you do that the host server redirects to https://server.com/project/folder/ which is not an assigned folder on the host domain.

But if you enter it properly: https://server.com/test/folder/ it works properly resolving to the ip server and getting the result.

So the server with nginx tries to find the folder and does the redirect.

Yet, I do not want it to redirect using the server's relative path, i want it to have the load balanced host path like this: https://server.com/test/folder should redirect to https://server.com/test/folder/ not https://server.com/project/folder/

Here is my nginx config file:

server {
    listen 80 default_server;
    listen [::]:80 default_server;

    root /home/.www;

    # Add index.php to the list if you are using PHP
    index index.php index.html;

    server_name _;

    # autoindex on;

    # serve static files directly
    location ~* \.(jpg|jpeg|gif|css|png|js|ico|html)$ {
        access_log off;
        #expires max;
    }

    error_log /home/.log/xerror.log;

    access_log /home/.log/xaccess.log compression;

    # include project
    location ^~ /project {
      alias /home/.www/project/public;
      try_files $uri $uri/  @project;

      location ~ \.php$ {
        fastcgi_split_path_info ^(.+\.php)(/.+)$;
        fastcgi_pass unix:/var/run/php/php8.1-fpm.sock;
        fastcgi_index index.php;
        fastcgi_read_timeout 180;
        include fastcgi_params;
        fastcgi_param SCRIPT_FILENAME $request_filename;
      }
    }

    location @project {
        rewrite /project/(.*)$ /project/index.php last;
    }



    location / {

        # First attempt to serve request as file, then
        # as directory, then fall back to displaying a 404.
        try_files $uri $uri/ /index.php?$args;

    }

    # pass PHP scripts to FastCGI server
    location ~ \.php$ {
        include snippets/fastcgi-php.conf;

        # With php-fpm (or other unix sockets):
        fastcgi_pass unix:/run/php/php8.1-fpm.sock;
        fastcgi_read_timeout 180;
        # With php-cgi (or other tcp sockets):
        # fastcgi_pass 127.0.0.1:9000;
    }
} 

How to make the server not redirect like that upon finding the folder?

Edit 1 @Ivan Shatsky

asked to get curl -v server.com/test/folder output from the requset, here it is:

*   Trying 35.***.160.34:443...
* TCP_NODELAY set
* Connected to server.com (35.***.160.34) port 443 (#0)
* ALPN, offering h2
* ALPN, offering http/1.1
* successfully set certificate verify locations:
*   CAfile: /etc/ssl/certs/ca-certificates.crt
  CApath: /etc/ssl/certs
* TLSv1.3 (OUT), TLS handshake, Client hello (1):
* TLSv1.3 (IN), TLS handshake, Server hello (2):
* TLSv1.3 (IN), TLS handshake, Encrypted Extensions (8):
* TLSv1.3 (IN), TLS handshake, Certificate (11):
* TLSv1.3 (IN), TLS handshake, CERT verify (15):
* TLSv1.3 (IN), TLS handshake, Finished (20):
* TLSv1.3 (OUT), TLS change cipher, Change cipher spec (1):
* TLSv1.3 (OUT), TLS handshake, Finished (20):
* SSL connection using TLSv1.3 / TLS_AES_256_GCM_SHA384
* ALPN, server accepted to use h2
* Server certificate:
*  subject: CN=server.com
*  start date: Apr 25 19:19:01 2022 GMT
*  expire date: Jul 24 19:19:00 2022 GMT
*  subjectAltName: host "server.com" matched cert's "server.com"
*  issuer: C=US; O=Google Trust Services LLC; CN=GTS CA 1D4
*  SSL certificate verify ok.
* Using HTTP2, server supports multi-use
* Connection state changed (HTTP/2 confirmed)
* Copying HTTP/2 data in stream buffer to connection buffer after upgrade: len=0
* Using Stream ID: 1 (easy handle 0x556617a0f2f0)
> GET /test/quasar HTTP/2
> Host: server.com
> user-agent: curl/7.68.0
> accept: */*
>
* TLSv1.3 (IN), TLS handshake, Newsession Ticket (4):
* TLSv1.3 (IN), TLS handshake, Newsession Ticket (4):
* old SSL session ID is stale, removing
* Connection state changed (MAX_CONCURRENT_STREAMS == 100)!
< HTTP/2 301
< server: nginx/1.20.2
< date: Mon, 23 May 2022 21:04:50 GMT
< content-type: text/html
< content-length: 169
< location: http://server.com/project/folder/
< via: 1.1 google
< alt-svc: h3=":443"; ma=2592000,h3-29=":443"; ma=2592000
<
<html>
<head><title>301 Moved Permanently</title></head>
<body>
<center><h1>301 Moved Permanently</h1></center>
<hr><center>nginx/1.20.2</center>
</body>
</html>
* Connection #0 to host server.com left intact

So it looks like it does get to my nginx server and it returns 301 redirect but under the folder that it has internally /project/folder/ folder which is correct for that server, but becomes incorrect once it propagates to the host server which should be server.com/test/folder/ and not server.com/project/folder/.