Prioritize transaction with low fee [regtest]
The issue got resolved. I had to prioritize the transaction before bumping fee, so the correct order of things mentioned in question will be:

Tx1

Prioritize Tx1

Bump fee

Tx2

Mine a block


Reason: Maybe we can't prioritize a transaction that is already replaced with a new transaction. I think prioritisetransaction should have returned some error or at least false in this case. However, I noticed it returns true for almost any transaction id. I copied a transaction id from testnet explorer and even that returns true when I use it with prioritisetransaction on regtest.