Nodemon and webpack-dev-server hot reload not working under WSL 2 after Windows 10 resinstall

A few days ago I re-installed Windows 10. I am developing full stack web app with express as backend and React.js as frontend. I am using nodemon to realod the server and webpack-dev-server for the frontend. Worth mentioning is that I am using WSL2. I noticed that nodemon has no reaction upon saving a file. I had to manually type rs to reload. At first thought it is a problem with nodemon. Looked for similar question here, but all I found was --watch, which did not help. Not that I've tried webpack and the issue persists I am clueless. Here is some useful info: webpack command: webpack-dev-server --host 0.0.0.0 --config ./webpack.config.js --mode development.

webpack.config.js:

module.exports = {
    entry: ["babel-polyfill", "./app/index.jsx"],
    module: {
        rules: [
            {
                test: /\.(js|jsx)$/,
                exclude: /node_modules/,
                use: ["babel-loader"],
            },
            { test: /\.css$/, use: ["style-loader", "css-loader"] },
            {
                test: /\.(jpg|png|svg)$/,
                loader: "file-loader",
                options: {
                    name: "[path][name].[hash].[ext]",
                },
            },
        ],
    },
    resolve: {
        alias: {
            components: __dirname + "/app/components",
            reducers: __dirname + "/app/reducers",
            constants: __dirname + "/app/constants",
            actions: __dirname + "/app/actions",
            store: __dirname + "/app/store",
            styles: __dirname + "/app/styles",
            assets: __dirname + "/app/assets/",
            api: __dirname + "/app/api/",
        },
        enforceExtension: false,
        extensions: [".js", ".jsx"],
    },
    output: {
        path: __dirname + "/public",
        publicPath: "/",
        filename: "index.js",
    },
    devServer: {
        contentBase: "./public",
        port: 8080,
    },
};

Also both of these are working fine on Linux laptop and were fine before the re-installation.

I figured this out on my own. Just posting it here in case somebody encounters the same issue. The difference between my system now and before the re-installation is that I upgraded to WSL2. For some reason nodemon and webpack-dev-server hot reload does not work in WSL2. Downgrading to WSL 1 resolved the issue.

EDIT: In order for this to work in WSL 2, the project needs to be inside the linux file system.