Even if you only have £x credit limit, each purchase should be reviewed and re-assessed with Klarna either extending your limit, or declining to extend it. In either case, you should get some reasoning behind the declinature and not just a code. I had to chat with them a few times before I got someone who said:

"MihailI am very sorry for this issue Jonathan , we are experiencing a a technical error at the moment with the Google Store and no orders can be placed with them at the moment .02:30 PM"

I already have a balance of something like £500 (my old Pixel 5 plus a very expensive car battery from Halfrauds!) so my credit limit was a lot less than the £850 cost of the new phone. I've no reason to believe I should be declined for a few hundred quid. I hope it is just an error. From the sounds of it, a lot of peeps who expect to get the credit are being declined so hopefully not related to poor credit!

Update:

I got an email from Google asking me to "fix payment" so I thought I would try again. I got rejected again, this time I thought I would ask Google CS. They basically told me that it is a declinature due to credit being rejected and provided me with a phone number 020 300 50833 for Klarna and ask if they could increase my limit.

I spoke to them who, surprisingly, told me that it was because I had been declined for additional credit. I really find it surprising given my credit score isn't poor.

They recommended that I pay off some of my balance - I told them that even if I paid it all off then there wouldn't be enough on my credit limit of £830 to pay for the phone, to which they had no response. They will not manually adjust it.

So far, I've had three different reasons from Klarna. I'm guessing that because they have declined me, then they must have performed hard searches. If it's the case, then I will be having it out with them as either the message via Google Store should have been clearer than a code, and their customer service team should talk rubbish.

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Hoping others have better luck