I just tested this on a clone VM and it runs just fine.
My assumption was wrong to build initramfs after switching controller type. System did not load VirtIO driver for that reason.
Missing piece of the puzzle was to install generic initramfs package.
What I did is to run commands in solution marked post with existing AHCI disk controller then shutdown the system. Switch to VirtIO disk controller. Boot system.
Since system will be booting with generic initramfs, it boots OK. Once system is up and running, I erased installed generic package and run same commands on solution marked post, again. Since that is advised to shrink initramfs (and probably its memory footprint).
Thanks again for all the help.
Regards,
Ertan