I ‘kinda’ got used to logging into my Mac with my Apple Watch (ser5), but since Big Sur download, that seems to have stopped working. Any other watch users in the group? It’s no big deal to put in a password, but once to have something, its sad to lose it. The “biggie” is that I find good old reliable BLOCS is working fine
Our Apple Watches unlock our Macs just fine.
I assume you’ve done the reboot routine? Maybe unpair and repair - or unapple and reapple as the case may be 
Yep Ian, Think it best to hit the reset button on the phone watch app, ,I will look up “re-apple” in a dictionary Lol!