FTP server feature of Karafs SSH daemon not working anymore

Issue

The FTP server feature of the Karaf SSH daemon stopped working in 6.3 R9.
When trying to connect using sftp, it fails with

$ sftp -o HostKeyAlgorithms=ssh-dss -P 8101 admin@localhost
Password authentication
Password: 
subsystem request failed on channel 0
Connection closed

This used to work in earlier versions of Fuse 6.3.