Upgrade to gradle plugin 3.2. Multiple modules project problems.Incremental out directory should be set to aar output directory. Build Failed

I am trying to upgrade gradle version and plugin version in my project. I have gradle 4.1 and plugin 3.2. After going through hundreds of errors I am stuck with that one: incremental out directory should be set to aar output directory. This error occurs org.gradle.api.tasks.TaskExecutionException: Execution failed for task ':ModuleLibrary:compileDebugJavaWithJavac'.

I tried clearing cache, restarting android studio. In fact I didn't come across similar issue.

This is gradle output of my project (root):

 applicationVariants.all { variant ->
            variant.outputs.all { output ->
                def relativeRootDir = output.packageApplication.outputDirectory.toPath()
                        .relativize(rootDir.toPath()).toFile()
                output.outputFileName = new     File("$relativeRootDir/release", defaultConfig.versionName + ".apk")
            }
        }    

And this is gradle output of my ModuleLibrary:

    libraryVariants.all { variant ->     
    variant.outputs.all { output ->
        if (outputFile != null && outputFileName.endsWith('.aar')) {
            outputFileName = new File("${archivesBaseName}-${defaultConfig.versionName}.aar")
        }
    }
 }

I have one warning when doing sync about 'compile' being obsolete but I cannot find the missing one. I think I changed all of them for implementation. I tried changing all 'implementation' for 'api' but no changes. Anyone has that problem? Please help!