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@sourcejon, @sunilbindra I wanted to have a look at this, but could not reproduce it.
Would one of you be in a position to provide a minimal example that reproduces the error?

Found it. This happens, when using the DevOps Task and "correctly" escaping \ in json of the transformation.

I.e. when the task is defined like:

- task: MagicChunks@2
  inputs:
    sourcePath: 'test.json'
    fileType: 'Auto'
    targetPathType: 'source'
    transformationType: 'json'
    transformations: |
      {
        "ExternalFiles/EncryptionKeyFile": 
              "C:\\TotalKeys\\keytest.config.json"
      }

(notice the double \\ in the transformations) - the error occurs.

However, if the transformation-json is defined ("wrongly") as

- task: MagicChunks@2
  inputs:
    sourcePath: 'test.json'
    fileType: 'Auto'
    targetPathType: 'source'
    transformationType: 'json'
    transformations: |
      {
        "ExternalFiles/EncryptionKeyFile": 
              "C:\TotalKeys\keytest.config.json"
      }

(notice the single \ in the transformations) - the error does not occur.

This behavior is the same, regardless whether one is using the "Inline JSON" transformation type or the "JSON File" type.