Runner with docker-windows cannot connect to the Docker daemon

Summary

I'm trying to configure GitLab runner on Windows 10 22H2 with docker-windows runner executor. Unfortunatelly basic jobs fails with the following error:

ERROR: Job failed (system failure): prepare environment: Cannot connect to the Docker daemon at npipe:////./pipe/docker_engine. Is the docker daemon running? (exec.go:78:120s). Check https://docs.gitlab.com/runner/shells/index.html#shell-profile-loading for more information

Probably it is a configuration issue and I would greatly appreciate any help.

Steps to reproduce

Run the job using docker-windows executor.

.gitlab-ci.yml 
image:
  docker.local/builder:latest

stages:
  - build

build-job:
  stage: build
  script:
    - echo "Test"

Actual behavior

Job fails with the following error:

ERROR: Job failed (system failure): prepare environment: Cannot connect to the Docker daemon at npipe:////./pipe/docker_engine. Is the docker daemon running? (exec.go:78:120s). Check https://docs.gitlab.com/runner/shells/index.html#shell-profile-loading for more information

Expected behavior

No error

Relevant logs and/or screenshots

job log 
Running with gitlab-runner 16.9.1 (782c6ecb)
  on XXXXX, system ID: XXXX
Preparing the "docker-windows" executor
00:01
Using Docker executor with image docker.local/builder:latest ...
Pulling docker image docker.local/builder:latest ...
Using docker image sha256:5576e20bc3707b59c30b4773f336d58849e8139ac6034e2a62e181ca0d15c326 for docker.local/builder:latest with digest docker.local/builder@sha256:d0e1f5ec9c162bfdf7679b831f5aec5e077bc676a29a25148b9a2b6214fa91fd ...
Preparing environment
02:01
ERROR: Job failed (system failure): prepare environment: Cannot connect to the Docker daemon at npipe:////./pipe/docker_engine. Is the docker daemon running? (exec.go:78:120s). Check https://docs.gitlab.com/runner/shells/index.html#shell-profile-loading for more information
docker-runner.exe --debug run 

Running with gitlab-runner 16.9.1 (782c6ecb)        job=101094 project=245 runner=XXXXX
  on XXXXXX, system ID: XXXXX  job=101094 project=245 runner=XXXXX
Preparing the "docker-windows" executor  job=101094 project=245 runner=XXXXX
Connected to docker daemon (api version: 1.43, server version: 25.0.3, kernel: 10.0 19045 (19041.1.amd64fre.vb_release.191206-1406), os: windows/x86_64)  job=101094 project=245 runner=XXXXX
Shell configuration: command: powershell
arguments:
- -NoProfile
- -NoLogo
- -InputFormat
- text
- -OutputFormat
- text
- -NonInteractive
- -ExecutionPolicy
- Bypass
- -Command
- '-'
cmdline: powershell -NoProfile -NoLogo -InputFormat text -OutputFormat text -NonInteractive
  -ExecutionPolicy Bypass -Command -
dockercommand:
- powershell
- -NoProfile
- -NoLogo
- -InputFormat
- text
- -OutputFormat
- text
- -NonInteractive
- -ExecutionPolicy
- Bypass
- -Command
- '-'
passfile: false
extension: ps1
  job=101094 project=245 runner=XXXXX
Using Docker executor with image docker.local/builder:latest ...  job=101094 project=245 runner=XXXXX
Creating user-defined volumes...                    job=101094 project=245 runner=XXXXX
Using host-based "runner-XXXXX-project-245-concurrent-0-cache-256a2a0a21f7076b19809f2a24b91cbb" for "c:\\cache"...  job=101094 project=245 runner=XXXXX
Using volume "runner-XXXXX-project-245-concurrent-0-cache-256a2a0a21f7076b19809f2a24b91cbb" as cache "c:\\cache"...  job=101094 project=245 runner=XXXXX
Creating build volume...                            job=101094 project=245 runner=XXXXX
Using host-based "runner-XXXXX-project-245-concurrent-0-cache-2c121c608c4de07906679419a11b5806" for "C:\\builds"...  job=101094 project=245 runner=XXXXX
Using volume "runner-XXXXX-project-245-concurrent-0-cache-2c121c608c4de07906679419a11b5806" as cache "C:\\builds"...  job=101094 project=245 runner=XXXXX
Creating services...                                job=101094 project=245 runner=XXXXX
Building service links...                           job=101094 project=245 runner=XXXXX
Starting Docker command...                          job=101094 project=245 runner=XXXXX
Looking for prebuilt image registry.gitlab.com/gitlab-org/gitlab-runner/gitlab-runner-helper:x86_64-v16.9.1-servercore1809...  job=101094 project=245 runner=XXXXX
Looking for image docker.local/builder:latest ...  job=101094 project=245 runner=XXXXX
No credentials found for docker.local/builder:latest  job=101094 project=245 runner=XXXXX
Pulling docker image docker.local/builder:latest ...  job=101094 project=245 runner=XXXXX
Using docker image sha256:5576e20bc3707b59c30b4773f336d58849e8139ac6034e2a62e181ca0d15c326 for docker.local/builder:latest with digest docker.local/builder@sha256:d0e1f5ec9c162bfdf7679b831f5aec5e077bc676a29a25148b9a2b6214fa91fd ...  job=101094 project=245 runner=XXXXX
Waiting for signals...                              job=101094 project=245 runner=XXXXX
No referees configured                              job=101094 project=245 runner=XXXXX
Executing build stage                               build_stage=prepare_script job=101094 project=245 runner=XXXXX
Preparing environment                   job=101094 project=245 runner=XXXXX
Looking for prebuilt image registry.gitlab.com/gitlab-org/gitlab-runner/gitlab-runner-helper:x86_64-v16.9.1-servercore1809...  job=101094 project=245 runner=XXXXX
Looking for image sha256:e582f83d45842b9289215e8c1313aafb3d85173ed880d8f55b31f41aaf7e0031 ...  job=101094 project=245 runner=XXXXX
Removing container runner-XXXXX-project-245-concurrent-0-b389d5eddca8f6d3-predefined  job=101094 project=245 runner=XXXXX
Disconnecting container runner-XXXXX-project-245-concurrent-0-b389d5eddca8f6d3-predefined from networks  job=101094 project=245 runner=XXXXX
Removing container runner-XXXXX-project-245-concurrent-0-b389d5eddca8f6d3-predefined finished with error Error response from daemon: No such container: runner-XXXXX-project-245-concurrent-0-b389d5eddca8f6d3-predefined (docker.go:799:0s)  job=101094 project=245 runner=XXXXX
Creating container runner-XXXXX-project-245-concurrent-0-b389d5eddca8f6d3-predefined ...  job=101094 project=245 runner=XXXXX
Executing on /runner-XXXXX-project-245-concurrent-0-b389d5eddca8f6d3-predefined the & {

echo "Running on $([Environment]::MachineName) via "DESKTOP-E6SGBHU"..."

}

  job=101094 project=245 runner=XXXXX
Attaching to container 3ff0d5b0c55a6c2ffe3c3671b9837e6bc2cc7343a6fb0233295a9611121ab9e5 ...  job=101094 project=245 runner=XXXXX
Starting container 3ff0d5b0c55a6c2ffe3c3671b9837e6bc2cc7343a6fb0233295a9611121ab9e5 ...  job=101094 project=245 runner=XXXXX
Feeding runners to channel                          builds=1 max_builds=1
Feeding runner to channel                           builds=1 max_builds=1 runner=XXXXX
Appending trace to coordinator...ok                 code=202 job=101094 job-log=0-825 job-status=running runner=XXXXX sent-log=0-824 status=202 Accepted update-interval=1m0s
Updating job...                                     bytesize=825 checksum=crc32:721f26d5 job=101094 runner=XXXXX
Submitting job to coordinator...ok                  bytesize=825 checksum=crc32:721f26d5 code=200 job=101094 job-status= runner=XXXXX update-interval=0s
Removing container 3ff0d5b0c55a6c2ffe3c3671b9837e6bc2cc7343a6fb0233295a9611121ab9e5  job=101094 project=245 runner=XXXXX
Disconnecting container 3ff0d5b0c55a6c2ffe3c3671b9837e6bc2cc7343a6fb0233295a9611121ab9e5 from networks  job=101094 project=245 runner=XXXXX
Appending trace to coordinator...ok                 code=202 job=101094 job-log=0-867 job-status=running runner=XXXXX sent-log=825-866 status=202 Accepted update-interval=3s
Removed container 3ff0d5b0c55a6c2ffe3c3671b9837e6bc2cc7343a6fb0233295a9611121ab9e5  job=101094 project=245 runner=XXXXX
ERROR: Job failed (system failure): prepare environment: Cannot connect to the Docker daemon at npipe:////./pipe/docker_engine. Is the docker daemon running? (exec.go:78:120s). Check https://docs.gitlab.com/runner/shells/index.html#shell-profile-loading for more information  duration_s=144.545484 job=101094 project=245 runner=XXXXX
Appending trace to coordinator...ok                 code=202 job=101094 job-log=0-1154 job-status=running runner=XXXXX sent-log=867-1153 status=202 Accepted update-interval=3s
Updating job...                                     bytesize=1154 checksum=crc32:acf78686 job=101094 runner=XXXXX
Submitting job to coordinator...ok                  bytesize=1154 checksum=crc32:acf78686 code=200 job=101094 job-status= runner=XXXXX update-interval=0s
Removed job from processing list                    builds=0 job=101094 max_builds=1 project=245 repo_url=http://XXX.git
WARNING: Failed to process runner                   builds=0 error=prepare environment: Cannot connect to the Docker daemon at npipe:////./pipe/docker_engine. Is the docker daemon running? (exec.go:78:120s). Check https://docs.gitlab.com/runner/shells/index.html#shell-profile-loading for more information executor=docker-windows max_builds=1 runner=XXXXX

Environment description

Custom installation. Gitlab runner service is running with Local System account.

config.toml contents 

concurrent = 1
check_interval = 0
shutdown_timeout = 0
log_level = "debug"

[session_server]
  session_timeout = 1800

[[runners]]
  name = "builder"
  url = "http://...."
  id = 12
  token = "...."
  token_obtained_at = 2024-03-18T09:33:15Z
  token_expires_at = 0001-01-01T00:00:00Z
  executor = "docker-windows"
  shell = "powershell"
  [runners.cache]
    MaxUploadedArchiveSize = 0
  [runners.docker]
    tls_verify = false
    image = "docker.local/builder:latest"
    privileged = false
    disable_entrypoint_overwrite = false
    oom_kill_disable = false
    disable_cache = false
    volumes = ["c:\\cache"]
    shm_size = 0
    network_mtu = 0

Used GitLab Runner version

Version:      16.9.1
Git revision: 782c6ecb
Git branch:   16-9-stable
GO version:   go1.21.7
Built:        2024-02-28T16:51:21+0000
OS/Arch:      windows/amd64

Docker info

docker info 

Client:
 Version:    25.0.3
 Context:    default
 Debug Mode: false

Server:
 Containers: 5
  Running: 0
  Paused: 0
  Stopped: 5
 Images: 4
 Server Version: 25.0.3
 Storage Driver: windowsfilter
  Windows:
 Logging Driver: json-file
 Plugins:
  Volume: local
  Network: ics internal l2bridge l2tunnel nat null overlay private transparent
  Log: awslogs etwlogs fluentd gcplogs gelf json-file local splunk syslog
 Swarm: inactive
 Default Isolation: hyperv
 Kernel Version: 10.0 19045 (19041.1.amd64fre.vb_release.191206-1406)
 Operating System: Microsoft Windows Version 22H2 (OS Build 19045.4170)
 OSType: windows
 Architecture: x86_64
 CPUs: 8
 Total Memory: 16GiB
 Name: DESKTOP-E6SGBHU
 ID: 4af574fe-6766-4ff3-8615-7b5c7c7c4e57
 Docker Root Dir: E:\docker-data
 Debug Mode: false
 Experimental: false
 Insecure Registries:
  127.0.0.0/8
 Live Restore Enabled: false
 Product License: Community Engine

Additional info

Running docker manually works, as well as running docker from shell executor:

docker run docker.local/builder:latest msbuild --version
**********************************************************************
** Visual Studio 2022 Developer Command Prompt v17.9.3
** Copyright (c) 2022 Microsoft Corporation
**********************************************************************
MSBuild version 17.9.5+33de0b227 for .NET Framework
17.9.5.7608
stages:
  - build

build-job:
  stage: build
  script:
    - docker run docker.local/builder:latest msbuild --version
job output 
 Running with gitlab-runner 16.9.1 (782c6ecb)
  on XXXX, system ID: XXXX
Preparing the "shell" executor
00:00
Using Shell (powershell) executor...
Preparing environment
00:03
Running on DESKTOP-E6SGBHU...
Getting source from Git repository
00:11
Fetching changes with git depth set to 20...
Reinitialized existing Git repository in C:/GitLab-Runner/builds/XXX/.git/
Checking out e8d4e905 as detached HEAD (ref is ci)...
Removing builds/
git-lfs/3.4.1 (GitHub; windows amd64; go 1.20.11; git 0898dcbc)
Skipping Git submodules setup
Executing "step_script" stage of the job script
02:12
$ docker run docker.local/builder:latest msbuild --version
**********************************************************************
** Visual Studio 2022 Developer Command Prompt v17.9.3
** Copyright (c) 2022 Microsoft Corporation
**********************************************************************
MSBuild version 17.9.5+33de0b227 for .NET Framework
17.9.5.7608
Job succeeded
Edited by Kamil