Authentication error - Reading from the stream has failed (no replies)

Hi all, first post. I need help with a very frustrating problem that we're having and not sure where else to look at to find the root cause of the error.

I have the following setup;
* .NET 4.5.1 app
* MySQL Connector for .NET 6.9.9
* MySQL Entity Framework 6.9.9
* MySQL Enterprise Edition 5.7.13
* Windows Server 2012

We have the following machines:
- 2 dev machines
- App Server and DB Server (hardened)
- 1 Win7 machine



Problem:
We built a .NET app and get error in Test Server 2 'Authentication to host '<host>' for user '<user>' using method 'mysql_native_password' failed with message: Reading from the stream has failed.

MySQL error log states 'Access denied for user 'user@host' (using password: YES)

This happens whenever a 'Select' query is performed, but oddly it's able to insert into one of the DB tables.

- Issue happens only when we run the app from the app server or DB server
- Issue doesn't happen when the app is ran from the Win7 workstation using same DB account to DB server
- DB user account has full privilege over the schema, no problem running SQL statements in Workbench
- port 3306 is enabled in the firewall
- some testing had been done in a TEST server which is not as hardened and that was working fine as well


What has been attempted so far:
* Set the server in connection string to IP addr, server name, and 127.0.0.1 (when app is ran directly from the DB server)
* created test apps to validate connectivity/SQL execution using simple ADO.NET (no EF6)
* restarted the server


Thanks in advanse