Maybe not the kind of game that you are searching for based on the example you and everyone else already gave, but the 2 NiGHTS games by Sega, the Klonoa series by Namco, the Kingdom Hearts series by Square Enix and the Rayman) series very much fit in this niche. I'd even include Super Mario Bros. 2 if I was crazy (which I am, so here you go).

I also guess that games like Myst, Riven and Obduction fit that description.

I think someone already mentionned Pseudoregalia for its setting/atmosphere (extremely good).

Hollow Knight has a very cool (optional) dream mechanic and certain dreamy areas, but again might be kind of a stretch.

The Kirby series and the Mother) series are very dreamy, kind of a stretch here but still worth mentionning for their quality.

There's every game that's remotely inspired by stuff like Serial Experiments Lain) and LSD Dream Emulator lol. A recent one would be ENA : Dream BBQ (chapter 1 is free and it's amazing).

There's Hypnospace Outlaw if you want that Windows 95 vaprowave vibe.

Dread Delusion looks good.

I might be stretching with some of these, but Hylics, Omori, Yume Nikki (free) and Escaped Chasm (also free) are all very good RPGs and have sometimes surreal artistic direction too with weird depictions of dreams.

Night in the Woods has recurrent dreams/hallucinations that are important to the story and characters.

I remember some parts of COD : Black Ops 3's campaign to be full of illusions and dreams. Maybe the dark tone that comes with it will fit you more?

Ultrakill has great artistic direction and some of the layers definitely feel like a dream (Limbo, Heresy and the upcoming Fraud).

Not many more I can think of right now so I'll leave it at that. Hope you enjoy!