Newly set password is not working for local user while login

Issue

• After changing the local user account password, user is getting 'access denied' error while login:

[user1@example ~]$ passwd test1
Changing password for user test1.
New password:
Retype new password:
Retype new password:
passwd: all authentication tokens updated successfully.
.
login as: test1
Pre-authentication banner message from server:
End of keyboard-interactive prompts from server
Access denied                                       <---- 
Keyboard-interactive authentication prompts from server:
| Password:

• /var/log/secure shows error below while login with new password fails for LOCAL user account:

Jan 16 18:07:45 example sshd[17114]: error: PAM: Authentication failure for test1 from x.x.x.x
Jan 16 18:07:45 example sshd[17116]: error: PAM: Authentication failure for test1 from x.x.x.x
Jan 16 18:07:45 example sshd[17115]: error: PAM: Authentication failure for test1 from x.x.x.x
Jan 16 18:07:45 example unix_chkpwd[17148]: password check failed for user (test1)
Jan 16 18:07:45 example sshd[17145]: pam_unix(sshd:auth): authentication failure; logname= uid=0 euid=0 tty=ssh ruser= rhost=x.x.x.x  user=test1