Microk8s and flannel. Different source address

Microk8s v1.18.1
Ubuntu 18 LTS

I run 2 node (sm1 and sm3) cluster on Microk8s using provided flannel with default configuration.
Microk8s has defined container network as:
where nodes has assigned subnetworks:

pod1 runs on sm1 and pod2 runs on sm3 and their IPs are:

When pod1 initiates transmission to pod2 its source address of pod1 on pod2 appears as
When pod2 initiates transmission to pod1 its source address of pod2 on pod1 appears as

This is highly undesirable and breaks communication in application I host.
Please advise why this is happening and what can be done to change it.
Expected is to have source IP address unchanged so destination pod can know real origin.