Internal Server Error on Subdomain Multisite Installation on Virtual Host

I am trying to move WordPress Multisite from live server to localhost on apache2, Ubuntu.
The live installation was set up as a multisite subdomain (for future); however, we have only one website working right now.

Local installation is set up as virtual host (/var/www/localsite)

The website itself is working; but when I try to login into wp-admin I get:
Internal Server Error
The server encountered an internal error or misconfiguration and was unable to complete your request.

Apache error logs contains: maximum number of internal redirects exceeded.

Multisite settings in wp-config.php are:

define( 'WP_ALLOW_MULTISITE', true );
define( 'MULTISITE', true );
define( 'SUBDOMAIN_INSTALL', true );
$base = '/';

I am sure that my mod_rewrite is enabled as WordPress resolves pretty permalinks correctly.

I understand that the problem is with .htaccess but I cannot fix it. I tried .htaccess version provided by WordPress for subdomain install:

RewriteEngine On
RewriteBase /
RewriteRule ^index\.php$ - [L]

# add a trailing slash to /wp-admin
RewriteRule ^([_0-9a-zA-Z-]+/)?wp-admin$ $1wp-admin/ [R=301,L]

RewriteCond %{REQUEST_FILENAME} -f [OR]
RewriteCond %{REQUEST_FILENAME} -d
RewriteRule ^ - [L]
RewriteRule ^(wp-(content|admin|includes).*) $1 [L]
RewriteRule ^(.*\.php)$ wp/$1 [L]
RewriteRule . index.php [L]

I also tried .htaccess downloaded from live server as follows:

# BEGIN WordPress
RewriteEngine On
RewriteBase /
RewriteRule ^index\.php$ - [L]

# uploaded files
RewriteRule ^files/(.+) wp-includes/ms-files.php?file=$1 [L]

RewriteCond %{REQUEST_FILENAME} -f [OR]
RewriteCond %{REQUEST_FILENAME} -d
RewriteRule ^ - [L]
RewriteRule . index.php [L]
# END WordPress

But the error persists. I read all the threads as I see this is not a rare situation, people are usually able to resolve it using the correct .htaccess version from WordPress; but that doesn’t help me.

Anyone has any idea of what can be wrong? Thanks.