emacs 29.1 ignoring terminal color palette

[Yamajala, Seshu]

I recently upgraded to emacs 29.1 and my theme does not seem to be rendering
correctly anymore. I use xfce4-terminal and emacs without x11, my term is set to
screen256-color, but there is a noticable difference between the ways color are
rendered with emacs 29.1 and emacs 27.2.

There is an example here: https://i.imgur.com/Ti0uLvt.png

On the left is emacs 29.1 and on the right is emacs 27.2. The right is what I
expect to see with emacs 29.1. I'm not sure how to debug this.