@Saumik,
I believe this is the code that disseminates DNS server address to DHCP clients: https://github.com/openstack/neutron/blob/d4cc45131979f1d297f39e2e5aad37a45917e358/neutron/common/ovn/utils.py#L578C52-L580
Maybe this can be worked around by setting subnet's dns_nameservers field to point to the (implied) gateway_ip for DNS native resolution. E.g. for subnet 10.1.2.0/24 you would point it to 10.1.2.1. I am going to test it in next weeks but if you can beat me to it, I would appreciate.
Also something to check: if DHCP agent with ml2/ovs driver behaves differently from ml2/ovn native implementation.
In general, I think this is something we could change to make DNS resolution work for isolated networks. I will check the current behavior with upstream bits and report back.