Unable to run set-sposite -Disablesharingfornonowners

reshmeeauckloo Are you trying it using both SPO PowerShell and PnP PowerShell?

Error message you shared is for PnP PowerShell. Is it throwing same error using SPO PowerShell as well?

Make sure you are using SharePoint Online Management Shell Version 16.0.4613.1211 or later while using SPO PowerShell.

Example: 

Set-SPOSite -Identity https://contoso.sharepoint.com/sites/mysite -DisableSharingForNonOwners

Documentation: Set-SPOSite 

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