snap prepare-image preseed fails with groupadd fail

Fail to build preseeded Ubuntu Core image if service has service which are not running as root

snap prepare-image --preseed --preseed-sign-key ubuntu-core-model <model>

Image build fails with the following error:

stateengine.go:149: state ensure error: devicemgr: cannot seed: cannot ensure users for snap "xxx-xxx-app" required system username "snap_daemon": groupadd failed with:
-----
ENTER EXTRAUSERS_GROUP_FILEEXIT EXTRAUSERS_GROUP_FILEENTER EXTRAUSERS_SHADOWGROUP_FILEEXIT EXTRAUSERS_SHADOWGROUP_FILEgroupadd: /var/lib/extrausers/group.760908: Read-only file system
groupadd: cannot lock /var/lib/extrausers/group; try again later.
-----
cannot preseed: state ensure errors: [devicemgr: cannot seed: cannot ensure users for snap "xxx-xxx-app" required system username "snap_daemon": groupadd failed with:
-----
ENTER EXTRAUSERS_GROUP_FILEEXIT EXTRAUSERS_GROUP_FILEENTER EXTRAUSERS_SHADOWGROUP_FILEEXIT EXTRAUSERS_SHADOWGROUP_FILEgroupadd: /var/lib/extrausers/group.760908: Read-only file system
groupadd: cannot lock /var/lib/extrausers/group; try again later.
-----]
error: error running snapd in preseed mode: exit status 1

Offending snap in question has following
system-usernames:
  snap_daemon:
    scope: shared