Group Policy Error Events 1085 & 8194

In my case few client XP machines were having problems with applying group policy settings. Following events were logged in Application event log from Source Userenv and Event ID 1085:

The Group Policy client-side extension Group Policy Local Users and Groups failed to execute. Please look for any errors reported earlier by that extension.
 

Earlier events related with applying group policy client side extension from Source Group Policy Local Users and Groups and Event ID 8194 were:

The client-side extension could not remove computer policy settings for 'GPO name and ID' because it failed with error code '0x8007000d The data is invalid.' See trace file for more details.

Easiest way to fix this behavior is to delete client's group policy cache. Because the client is XP, delete all folders from %ALLUSERSPROFILE%\Application Data\Microsoft\Group Policy\History and run gpupdate /force to refresh policy settings. Error events from Application log regarding event ids 1085 & 8194 should be solved.