Inappropriate reference requests from Journal reviewers
If you think you see this often, imagine how much more often journal editors see it.

So sticking to ethics is fine. Journal editors see this often enough to know when to reject a review because of it. You are not generally under threat of rejection if you decline to cite a reference. The worst that can happen is that the reviewer rejects your article, but since they've already recommended revision the first time, the editor is more equipped to discern if the rejection is unfair. Remember that if the reviewer says "reject because they didn't cite XYZ", the editor (who is able to see the reviewer's identity) is very much able to see if XYZ is also written by the reviewer. In your case you even have an editor who said to refer any inappropriate citation requests to them.

A word of caution: there's no guarantee that the requested citations are articles by the reviewers. There's a lot of diversity in what reviews look like, and it's possible the reviewer did not write those articles. Don't leap to conclusions. Stick to the facts ("we do not think these articles are relevant") and don't allege collusion (such as how the reviewers &amp; editors are from the same institution - you simply don't know).