Visual Studio Code Dev Container points to wrong git repository directory

I want to develop frontend app in an isolated container. To set it up, I have followed Developing inside a Container document.

This is my project:

├── .dockerignore
├── .git
│   └── foo
├── .gitignore
├── .gitmodules
├── backend
│   ├── .devcontainer.json
│   ├── .git
│   │   └── foo
│   ├── .gitignore
│   ├── Dockerfile.development
│   ├── Dockerfile.production
│   └── foo
├── docker-compose.development.yml
├── docker-compose.production.yml
├── docker-sync.yml
├── frontend
│   ├── .devcontainer.json        <- Trying to run dev container with this one.
│   ├── .dockerignore
│   ├── .git
│   │   └── foo
│   ├── .gitignore
│   ├── Dockerfile.development
│   ├── Dockerfile.production
│   ├── foo
└── └── yarn.lock

frontend/.devcontainer.json

{
    "name": "chat-app_frontend",
    "dockerComposeFile": ["../docker-compose.development.yml"],
    "service": "frontend",
    "shutdownAction": "none",
    "extensions": ["dbaeumer.vscode-eslint"],
    "workspaceFolder": "/app",
    "settings": {
      "git.path": "/usr/bin/git",
    }
  }

The problem is that the IDE tries to open git repository from wrong directory. As a result, while being connected to the Dev Container, IDE Git tools tell me the repository can't be found.

Output -> Git returns:

Opening repository for path='/app' failed; ex=Failed to execute git {
  "exitCode": 128,
  "gitErrorCode": "NotAGitRepository",
  "gitCommand": "rev-parse",
  "stdout": "",
  "stderr": "fatal: not a git repository: /app/../.git/modules/chat-frontend\n"

I can see .git directory in the running container:

23baa3d3982d:/app# find .git
.git