Java Runtime incorrect, when using gradle toolchains

I am using the following build.gradle file:

plugins {
    // Apply the java-library plugin for API and implementation separation.
    id 'java-library'
}

java {
    toolchain {
        languageVersion = JavaLanguageVersion.of(17)
    }
}

repositories {
    // Use Maven Central for resolving dependencies.
    mavenCentral()
}

dependencies {
    // Use JUnit test framework.
    testImplementation 'junit:junit:4.13'

    // This dependency is exported to consumers, that is to say found on their compile classpath.
    api 'org.apache.commons:commons-math3:3.6.1'

    // This dependency is used internally, and not exposed to consumers on their own compile classpath.
    implementation 'com.google.guava:guava:29.0-jre'

    // Java Parser and Code Generator
    implementation 'com.github.javaparser:javaparser-symbol-solver-core:3.24.7'
}

It uses the Java 1.17 toolchain, however in the Configure Java Runtime Tab, it shows Java Version 12:

When I try to use newer Java features, it shows the following Error:
The Java feature 'Text Blocks' is only available with source level 15 and above

Environment

• Operating System: Windows 10
• JDK version: 1.17
• Visual Studio Code version:
• Java extension version: 1.12.0
• Gradle version: 7.0.0

Steps To Reproduce

Sample Project: java-rewriter.zip

1. open lib/src/test/java/dev/levno/javarewriter/LibraryTest.java in vscode
2. Error is shown

Current Result

Error is displayed in File

Expected Result

No Error should be displayed

Start with the sample project's build.gradle and lib/src/test/java/dev/levno/javarewriter/LibraryTest.java, then reproduce the diagnostic in VS Code and inspect the Configure Java Runtime tab. Done means the project using the Java 17 Gradle toolchain no longer reports the text-block source-level error.