I’m also using MT1300 and having this problem fairly frequently but intermittently.
Meaning that it will work for a while and then the chosen VPN policy will randomly stop working. This happens with both “Do not use VPN for the following” and “Only allow the following use VPN”. Same with “Mac Address” and “Domain/IP”. So something definitely seems to be broken with “VPN Policies” and when it breaks all devices will be routed behind the VPN regardless of chosen policy.
I’m using WireGuard, Mullvad, and 3.203 firmware.
I found this post describing a similar issue with the MT300N-V2:
If I follow those steps it works again, until it randomly decides to quit working again.