Why my site does not work without a .htaccess redirect

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WP Experts,

Please help me understand what is going on and what should I do to fix it.

I have a bit of non standard set up but its not that complicated.

The root pub\_html folder has a wp installed in it but i don’t want to use it.

I have second wp installed in /xyz folder. The site is supposed to run from it so [mysite.com/xyz]) is supposed to be the site google should index.

I have copied wp-config file from xyz folder to pub\_html so users are directed from [mysite.com]) to [mysite.com/xyz])

It is working fine. But for some reason, I must use the following in .htaccess in /xyz otherwise I get a message that theme directory abc does not exit. It does exist and is very well in the wp-content/themes folder.

RewriteRule .\* – \[E=HTTP\_AUTHORIZATION:%{HTTP:Authorization}\]

RewriteBase /xyz/

RewriteRule \^index\\.php$ – \[L\]

RewriteCond %{REQUEST\_FILENAME} !-f

RewriteCond %{REQUEST\_FILENAME} !-d

RewriteRule . /xyz/index.php \[L\]

</IfModule>

1. Any idea which process has made these entries in htaccess file?
2. Google won’t like this redirect and as a result my site wont be indexed properly, right?
3. What are your suggestions to remediate this tricky issue?

PS: In settings/Reading, i have defined homepage as mysite.com/xyz I am wondering if this is making the changes in .htaccess and forcing a redirect to /xyz

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