.env file wrong behavior (v2)

[payellodevsupport]

The below should output dev not sandbox as the .env file should override the wrangler variables.
This happens only in v2. v1 is fine.

wrangler.toml:

name = "test"
type = "javascript"

[build.upload]
format = "modules"
main = "./index.mjs"

[env.dev]
account_id = "-REDACTED-"
zone_id = "-REDACTED-"
workers_dev = true

[env.dev.vars]
ENV = "sandbox"

.env

ENV=dev

Test script:

interface Env {
   ENV: string
}

export default {
  async fetch(request: Request, env: Env, ctx: ExecutionContext) {
    console.log(env.ENV)
    return new Response(null, { status: 404 })
  }
}

Miniflare command:

miniflare -w -m --wrangler-env "dev" --env ".env"

Output:

sandbox