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That's not a bug - part of that feature adds an indent to every paragraph - that's clearly stated in the tooltips and the help.
If you want the equivalent of the feature without the indents use the extra_css option instead, and add a line like this:
p {margin-top: 0em; margin-bottom: 0em}
It may not be quite as effective on some books, as it wiil need to compete with the settings that are already in the book, but in general it should do the job.
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