I have found a solution, please follow the solution below, but before removing anything recursively that is rm -r make sure to copy those folder contents if you have any personal data like desktop files, icons, symlinks, etc.

Use the — apt update && apt full-upgrade -y .

• It will install some additional packages.

Use — rm -r .config .cache .local

• Reboot a couple of times, sometimes it might not boot up and end up in initramfs, just type help, and force shutdown
• On next reboot, it should boot properly.

Some taskbar icons will be gone, but the system seems stable and reboot sustains the user settings like wallpaper, desktop files etc.

Users should always be using full-upgrade and not just upgrade on kali systems; we have this documented at https://www.kali.org/docs/general-use/updating-kali/ - because dependencies can and do change often, we expect users to run full upgrades, and not just upgrade.

Problem: No one is reading documentation :-/

Even though I did a full-upgrade, there is a bug like this in the background of the terminal, which comes automatically with the installation. And sometimes icon disappearances, other technical errors etc.