Even the API claim value doesn't contain any permission level requesting access to all site contents:
during granting permission it is asking then for read and write for ALL sharepoint sites:
Can anyone kindly tell my why? This app should access and work only within one pre-selected site collection.
Thanks in advance!
Explanation about the mentioned behaviour to not grant too much permission if not needed

To restrict SharePoint API permission to a specific site check below:
Create a Microsoft Entra ID application:
Use the below PowerShell script to restrict SharePoint API permission to a specific site
When I tried to connect with the above site its successful:
When I tried to connect to another site, got an error like below: