Sharepoint external sharing permissions under an M365 group

Hi,

We have performed a Sharepoint rollout and i am using an M365 group with a Sharepoint Team Site.

The Team site has multiple document libraries. When users attempt to externally share files or folders within the Team site it only gives them the option of " people with existing access". 

I have checked and double checked permissions at both tenant level and site level and the only external sharing option i have restricted is " anyone with a link". Site members are currently assigned contribute permissions.

I have also checked powershell site detail and i cannot see anything obvious as to why its not allowing members see allowed external sharing options? I have also checked sharepoint access request settings and the first checkbox is ticked " allow members to share the site and individual files and folders".

I can assign Site owner permission to allow all available options but i dont really want to assign staff as site owners when they do not need that access. 

I wonder whether limited user access permissions has something to do with preventing all available link sharing options being visible? Would appreciate any help with this.