Steam is doing the correct thing. It notices the physical location of your Cloud PC's IP is miles from your phone, it is just double checking that it is you, and not someone trying to hack your steam account. It does the same on Shadow, NVIDIA Geforce Now, or pretty much any other Cloud service.
You have to select Steam Guard options in the below order, or it will lead to Steam rejecting your login.
- Scan the QR code
- Select "Steam App" or "Steam Client"
- Other
- Select the location of your Cloud PC (region) not your physical location
- "Understand and confirm login"