How to set two timers running at the same time in atmega328p?
Thanks to @brhans for bringing awareness of prescalers.
I think what happened was that interrupt setup with no prescaler was being depleted by other functions which took many mcu cycles to complete.
The conflict was resolved by setting microseconds timer to 20 us instead of 1 and setting prescaler to 32.
For timer with milliseconds prescaler was set to 256.