@Milhouz I had a similar situation and it took a while to find a resolution.  If you are still having trouble, I explained everything in this thread.  To sum up, here is what fixed it for me. 

• Remove the device from Home Assistant (three dots -> Delete) 
• Factory reset the device (hold down reset button for 5 seconds)
• Re-add the device to the network using TP-Link app
• Restart Home Assistant

After you restart Home Assistant, it should find the power strip and want to re-add it with the usual local connection rather than asking for cloud credentials.  HA should recognize the device and reassociate all your existing automations back to it.  

Hopefully this helps.  

  @Milhouz just ran in to the same exact issue and error message tonight.

1) ignore the discovered device

2) go to the TP-Link Smart Home configured integration

3) select the blue "Add Entry" and enter the device IP address (may need to go through your router to obtain this).

4) it will prompt you to assign the plug(s) to an area. 

  @TerminalVeloc 

Thank you TV! This worked for me. I don't think I would have ever thought of adding the IP manually. I very much appreciate you sharing your solution.

  @Milhouz I'm getting a similar issue. I already tried everything and nothing has worked so far, already tried:

1. Toggle off and on the third party compatibility in the KASA App and Tapo App
2. Changing my password from the TP-Link account ID 
3. Factory resetting the power strips and trying to add them from scratch to Home Assistant
4. Sharing the devices on Tapo App to a paralell account and try to authenticate with the paralell account
5. Assigning a dedicated IP address to the devices on my modem

In all cases I'm getting an error that says something like:

"Unable to authenticate: Device response did not match our challenge on ip 192.168.100.xx, check that your e-mail and password (both case-sensitive) are correct."

Obviously, I'm sure that my password and email are both correct. It used to work before and with the firmware updated stopped working, I did not find a way to downgrade my firmware version to rollback the issue.

Any other advice would be appreciated as I used to use these power strips a lot through Home Assistant and used to work seamlessly.

Thanks in advance!

  @Juan1591  I am 99% sure it is a firmware bug in the HS300.  All of my other 31 TP-Link/Kasa devices work fine except this one power strip after the firmware update.  I am not sure where else to report it.  

  @Milhouz 

I discovered another detail: if you toggle the "Third Party Compatibility" option in the Tapo app (disable 3rd party, count to 10, then enable 3rd party), the device will instantly return to normal local control.  However, if the power strip is power-cycled (turn off the power strip with the rocker switch and then back on), the HS300 will be unavailable until 3rd party is toggled again.  

FYI

  @Milhouz 

For anyone still having problems with this, I think I got it working for me.

I had one working and 3 others not working. I turned off Third-Party Compatibility, waited until I lost connection in Home Assistant for the one that did work until I lost connection for it, the reenabled Third Party Compaitility and now I was able to add another one. 

  @Milhouz 

Had same issue after updating to latest HS300 firmware. Tried all the things said above to no avail for at least a month until somehow tried them again and something worked, may have something to do with the order of certain things.

1. Factory reset the HS300 - Home Assistant STILL can't normally add HS300 even with proper credentials

2. Turned HS300 off for around a minute, turned it back on, nothing changed

3. Turned Third Party Compatibility off for at least a minute in Tapo app (though i usually use the Kasa app), then turned it back on - but HA still can't add the discovered HS300 normally.

4. After the above, i then tried the suggestion to ignore the discovered HS300 and manually add its IP address in the TP-Link integration. It worked and i don't think it even asked for credentials this time, i don't remember, i was just too excited to care at that point. Thanks to TerminalVeloc from this thread for that info

I think steps 3 and 4, in this particular order, is the actual solution that worked for me. I did them before but but separately and not in this order so i was pessimistic in trying them again this time.

Edit: I've also rebooted my Home Assistant instance once or twice throughout this process but i'm not sure if it was actually necessary.

  @HHH_ Tried this and actually got it to reconnect to HA which was major progress over everything else I've tried. Unfortunately it doesn't seem to survive a power cycle unplugging the strip so it's still broken. Would really love to see Kasa/TP-Link address this as I think a lot of people now have mostly useless hardware due only to a software adjustment.