The following steps resolve the problem:
- Go to ~/Library/Keychains (user's Keychain folder)
- Look for a folder that is a long series of numbers and letters: "ADS676BB8-CEJD-45..."
- Delete the folder and IMMEDIATELY restart the Mac
You should no longer be prompted for the Local Items keychain password.
Note: after you restart a new folder with a similar name as the old one (a long series of numbers and letters) will appear in ~/Library/Keychains. Don't panic, this is normal behaviour. The new folder corrects the problem.
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