Laravel Sail - SQLSTATE[HY000] [2002] Connection refused

I am trying to setup Laravel Sail environment on the server, and after doing the same setup that works locally on my machine along with the .env file

DB_CONNECTION=mysql
DB_HOST=mysql
DB_PORT=3306
DB_DATABASE="dbname"
DB_USERNAME="sail"
DB_PASSWORD="password"

This is my docker-compose that once again works locally

mysql:
        image: 'mysql:8.0.36'
        command: --default-authentication-plugin=mysql_native_password --skip-grant-tables
        ports:
            - '${FORWARD_DB_PORT:-3306}:3306'
        environment:
            MYSQL_ROOT_PASSWORD: '${DB_PASSWORD}'
            MYSQL_ROOT_HOST: '%'
            MYSQL_DATABASE: '${DB_DATABASE}'
            MYSQL_USER: '${DB_USERNAME}'
            MYSQL_PASSWORD: '${DB_PASSWORD}'
            MYSQL_ALLOW_EMPTY_PASSWORD: 1
        restart: always
        volumes:
            - 'sail-mysql:/var/lib/mysql'
        networks:
            - sail
    redis:
        image: 'redis:alpine'
        ports:
            - '${FORWARD_REDIS_PORT:-6379}:6379'
        restart: always
        volumes:
            - 'sail-redis:/data'
        networks:
            - sail
        healthcheck:
            test:
                - CMD
                - redis-cli
                - ping
            retries: 3
            timeout: 5s
networks:
    sail:
        driver: bridge
volumes:
    sail-mysql:
        driver: local

I tried the following

• Deleted all containers, images and volumes using docker system prune -a
• Changed the password from default to root
• Changed both the username and password to root (Removed "" from .env also)
• When trying to access mysql via sail shell I get the following line ERROR 2002 (HY000): Can't connect to local MySQL server through socket '/var/run/mysqld/mysqld.sock' (2)
• Chaned DB_HOST in database.php from default to mysql

Note: this is Ubuntu 22.04 server running on digital ocean droplet.

I always get the same error which is

SQLSTATE[HY000] [2002] Connection refused

also docker ps returns a healty mysql container running:

mysql:8.0.36   "docker-entrypoint.s…"   11 minutes ago   Up 11 minutes             0.0.0.0:3306->3306/tcp, :::3306->3306/tcp, 33060/tcp                                     nlonetwork_local-mysql-1