The issue: Tried many of the available option from here (with latest proton and experimental) and it had a lot of lag issues. It wasn't the game because on windows it worked great.

The solution: In the end I gave cachyos latest proton a try and I had about 10-15 extra fps over Windows. The fps drops are still there, but it doesn't stagger the screen and the game is playable now with medium settings on Directx12

Testing env: Walking around in Deadsvile and see if the screen staggers while walking for a few minutes. Didn't have any stagger with the above solution even during rain. I will play more in the following days (when the new servers I will join starts) and update in case I face game-breaking issues.