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Hello @Khanna, Keshav
What you are seeing is currently expected behavior.
Microsoft confirms that Tenant Governance relationships can't coexist with a GDAP relationship configured through Partner Center between the same two tenants. Therefore, the existing Partner Center GDAP relationship must be removed before the Governance relationship can be established.
The good news is that Governance relationships themselves use GDAP technology for delegated administration. In the Governance policy template, you can assign the required Microsoft Entra roles to your MSSP security groups. Microsoft currently lists Microsoft 365 Admin Center, Exchange, SharePoint, Teams, Intune, Entra, and Azure among the supported admin portals for this delegated access.
For Sentinel in the Defender portal, you additionally assign the required Microsoft Sentinel Azure RBAC roles to the remote tenant groups created by the Governance relationship.
So the intended model is effectively to move the delegated administration permissions you previously had through Partner Center GDAP into the Governance relationship, while keeping Azure Lighthouse where you still need it for Azure subscription management.
Please note that Tenant Governance is still in Preview, so there may still be limitations compared with the mature Partner Center GDAP model.
If this answer helps, please mark it as Answered.