The app has used the embedded wear APK distribution model, but since this distribution method is no longer supported since January, the app has been migrated to use a separate Wear APK.
Followed the guides to set the wearAppUnbundled true flag in the mobile APK and set the <uses-feature android:name="android.hardware.type.watch"/> along with <meta-data android:name="com.google.android.wearable.standalone" android:value="false" /> in the Wear APK.
The only question is what app version code to use when uploading the Google Play?
Let's say version 100 is the legacy version with the embedded wear APK. (minsdk 19)
Version 300 is the new mobile APK without the wear APK, this has been uploaded to the Play Store. (minsdk19)
Now, what version code to use for the Wear APK? (minsdk 25)
If it's set to version code 200 then when preparing the release the Play Console accepts it. However, it says that 300 will not be included in this release. And this is what is scary as one might think that the mobile APK will not be visible on the Play Store if it's released as is based on this message.
Should the "Include" option next to the 300 version APK in the "Not Included" section be used to force the Play Console to keep that one active?
Based on the Multi-APK versioning guide:
This scenario might be "shrinking" since the Wear APK is more restricted (due to the min SDK level and the uses-feature declaration).
However, since the Wear APK uses a lower version code, the capable devices should still receive 300 by default? This is what is confusing, as based on this I'd assume that the 300 version should not be affected at all by uploading a more restricted lower code APK.
The most important thing is to have the new mobile APK as is, and it shouldn't disappear from the Play Store.
As it turns out, it's easy to solve this. In this case, the Wear OS APK had to be uploaded with a higher version code, version code 400, for instance. On the release page, the Include button had to be used to include the 300 version (phone APK).
It kind of make sense, but if one is new to Multi-APK release the messaging is not straightforward and if the app has many installs one thinks twice before taking such actions.
(Probably should have uploaded both APKs in the first place when released the new phone APK)