Help me understand how to use Invoke-PnPSiteTemplate when there are templates in the document library

[pajeffery]

I've been having a challenge using templates in SharePoint and wanted to get some guidance on the appropriate method, I've made progress but getting stumped on the last stage.

We have a site setup that is a template site, within that site there are a number of document libraries and I want to template them so they can be created in future sites.

I have been able to generate a pnp file for the Document Libraries using this line:

Get-PnPSiteTemplate -Out .\PnPTemplates\SP.project.Lists.Test.pnp -Handlers Lists, ContentTypes, Fields -ListsToExtract "Test" -Force
But when we applied this template to a new site we were getting an error regarding template files, I can confirm this as by going into the PNP files and seeing a DocumentTemplate parameter pointing to "{site}/Records/Forms/template.dotx" - I can delete this value and the template gets applied without any issues.

Using this command I am able to pull the .dotx file and include it in the .pnp package:
Add-PnPFileToSiteTemplate -Path ".\PnPTemplates\SP.project.Lists.Test.pnp" -SourceUrl "Test/Forms/template.dotx" -Container "Test/Forms/Document/"

But when I try and deploy the template to a library I'm getting the same template error about the template existing in the Forms directory:
Write-Error: Template Error: Invalid template URL. The template must exist in the Forms directory of this document library. Create the template in the Forms directory, and then re-type the Web address. Note that you cannot move or copy a template into the Forms directory.
How do I get the file from the PNP package into the forms folder? Is this something that the Invoke-PnPSiteTemplate does automatically or do I need to add the file to the library before applying the template?

Just to add to this when I package up the PNP with the file I have taken a look at the xml and I can see the line that references the library with a template:
<pnp:ListInstance Title="Test" Description="" **DocumentTemplate="{site}/Test/Forms/Document/template.dotx"** >

I can also the the file referenced:
<pnp:File Src="Sharing/Forms/template.dotx" Folder="Sharing/Forms" Overwrite="true" Level="Published" />

The only obvious issue I can see is that the folder location is different, but I thought that was the Container parameter from the Add-PnPFileToSiteTemplate command.

Would appreciate any help/guidance that you have