Setting DNS in Router kills the internet

I am using Raspberry Pi Model 3b for pihole with hypriot os and docker. If I set pihole to resolve DNS from my laptop, it works fine. But setting the DNS at the router breaks the internet connectivity.

pihole debug log is attached herewith

Interestingly, after setting DNS in the router, the pihole receives lots of queries to

Can someone help me debug this scenario? I checked with nslookup pihole_ip, and it works when I try from my laptop. But it fails when I try after setting system-wide DNS IP amd without pihole_ip.

Try defaulting your router settings and only enter the Pi-hole IP for DNS on the DHCP service settings page on the router.
Methods 1 or 2 in below FAQ: