hmmm.. I got the issue now. My html pages are dynamically generated through htaccess + another PHP file inside https://domain.com/folder/
t310s_ you are indeed correct. Your solution(two original rewrite lines already there in wp default htaccess) works but only if there are actual static files present in folder.
In my case they are not static files though they are html files so it does not work. I apologize for inconvenience.
Although my problem still remains – but I think there is a simple solution – a htaccess command that tells not to execute html, htm files through WordPress index.php
Thanks everybody for their time.