Cannot install vGPU VM guest OS Windows Server 2012R2 drivers from 370.17 release


Have updated the host driver on ESXI 6.0.0-20170202001 to version 367.123. Xorg service is up and running, nVidia SMI reports properly. Rebooted the host.
When I try to update the driver in a VM where guest OS which is Windows Server 2012R2 from a previous version 362.13 to 370.17 which came with v 367.123 ESXI host driver I get an error message from the installer "This NVIDIA graphics driver is not compatible with this version of Windows. The graphics driver could not find compatible graphics hardware.". Windows device manager shows Error Code 43 under the Nvidia Grid K160Q device.
The Horizon Server version is 7.1.0 build 5170113. Previously with 361.40 ESXi host driver and 362.13 guest OS driver everything worked fine. Nothing except for the host driver has changed.

What am I missing and how to resolve the issue?

Tried to install every driver from the pack and found out that "370.17_grid_win8_win7_32bit_international" named driver from the 367.123 bundle installs correctly on Windows Server 2012R2 x64 which is odd, but who cares if it works.