Hello
Welcome to a world of pain
I had a discussion with HMPO about such issue.
In nutshell, they want to avoid the situation where someone with multiple citizenship ends up with a British passport and a foreign passport bearing different names. And they are very intolerant about it. Even a difference in spelling or order of surnames is enough for them to refuse the issuance of the British passport.
As a British citizen, you are entitled to a British passport. So they are never going to send a flat refusal letter. But they will keep refusing your documents and asking you to change them to meet their criteria. This can drag for years and at the end, you may or may not get the British passport.
You are not alone in similar situation. Anytime someone hold 2 passports or plus, there is this risk of conflicts between laws/procedures in different countries. Like in the UK, it's easy to change your name but in other countries, it requires a court judgement or it's just impossible.
Honestly, you have to think how the British passport is important for you. If you absolutely need it, you may have to revert to your original name.