This is Working As Designed.
This is actually unrelated to your issue, but there IS a URL Conflict for that category. Since it uses the prefix "Category", make sure you have filtered the URL Conflicts page accordingly. The default view only shows conflicts that have no prefix.
Actually related: the area the category is saved in does not allow the prefix "Category", only "[No Prefix]", so it must be renamed when you edit it. However, there is already something else with the un-prefixed version of the title.