Veeam support asked me to do additional testing and according to the results, problem seems to be in Hot-Add with Veeam Proxy. This still has to be verified by Veeam, but below are my findings.
When Veeam PVE proxy Hot-Adds the disk => Almost all I/O activity within the VM stops and VM becomes sluggish / slow and all kind of kernel errors will start popping up "if you can see the console". Otherwise they just can be checked from /var/log/messages later. Sometimes the vncproxy simply just refuses to connect as the VM is not responding in timely manner.
Workaround (at least on our case) to avoid VM stuns / crashes at the moment is to run Veeam backups just using NBD. This requires you to have the Veeam PVE Proxy on separate host than the VM that is getting backed up - unfortunately there is no setting in Veeam from where you can choose the backup mode. Another problem with this is that NBD backups are also slower ~ roughly by 1/3 compared to Hot-Add.
I did some additional testing when backup was running on with NBD mode running dd command on backed up VM. Performance on writes dipped on SSD Backed Ceph to half when running backups but it is still very good performance. Results are below:
#When Veeam backup was running using NBD Mode:
~# dd if=/dev/zero of=/root/dd-test.img bs=1M count=16384 oflag=direct status=progress
16283336704 bytes (16 GB, 15 GiB) copied, 33 s, 493 MB/s
16384+0 records in
16384+0 records out
17179869184 bytes (17 GB, 16 GiB) copied, 33.7971 s, 508 MB/s
#After Veeam backup was finished:
:~# dd if=/dev/zero of=/root/dd-test.img bs=1M count=16384 oflag=direct status=progress
16984834048 bytes (17 GB, 16 GiB) copied, 17 s, 999 MB/s
16384+0 records in
16384+0 records out
17179869184 bytes (17 GB, 16 GiB) copied, 17.1844 s, 1000 MB/s
Similar test above when using Hot-Add - speed was limited to mere Kilobytes and VM was really hard to operate at all:
#When Veeam backup is running (Hot-Add):
~# dd if=/dev/zero of=/root/dd-test.img bs=1M count=16384 oflag=direct status=progress
7340032 bytes (7.3 MB, 7.0 MiB) copied, 70 s, 105 kB/s