I tried this option.
No matter if it enabled or disabled.
Language module always displays URL site.com/en/ instead of site.com

and when it is disabled then all languages will display /langcode/ and trhere is no redirect?

Exactly.
When it's disabled, all URLs contains /en/ for default language.
And when we're switching from another language's - no any redirects.
site.com/es/ to site.com/en/ = 200

When it's enabled:
site.com/es/ to site.com/en/ = 301 to site.com

In the same time, alternate links are correct:

<link href="https://site.com/" rel="alternate" hreflang="en-GB">
<link href="https://site.com/fr/" rel="alternate" hreflang="fr-FR">
<link href="https://site.com/de/" rel="alternate" hreflang="de-DE">

This creates a huge number of 301 redirects, especially on large sites.
And this is a very serious problem for SEO.

so dont enable it and the problem is solved?

so dont enable it and the problem is solved?

Of course no )))

At first, it's a serious bug. It should be fixed.

I'm sure many webmasters with multi-language sites don't even know about this problem.
Personally, I found out about it by accident 2 years later when Google sent me an email saying there were problems with the site that needed to be fixed, a large number of redirects.

Next, in my case. I have a very big site, which already indexed by all search engines.
And now English site version have URLs like
https://directory.audio
https://directory.audio/sound-effects
https://directory.audio/free-music

If I disable this option, thousands pages will be redirected back, from
https://directory.audio/free-music to https://directory.audio/en/free-music

Yes, the behavior of Joomla is strange here. It is how it has been working for a decade or longer now. I wouldn't exactly call this a bug, but indeed it should be looked at if we change this behavior and improve it, making this a feature.

Same problem in Joomla 5.
Has someone found the solution?
There should be a fix in this module, since this IS real problem for all Joomla sites, since this "feature" has very bad SEO consequences in multilingual sites.

Same problem in Joomla 5. Has someone found the solution? There should be a fix in this module, since this IS real problem for all Joomla sites, since this "feature" has very bad SEO consequences in multilingual sites.

I changed the module a little, maybe my solution will help:
/modules/mod_languages/src/Helper/LanguagesHelper.php

use Joomla\CMS\Component\ComponentHelper;
use Joomla\CMS\Plugin\PluginHelper;

$default_lang = ComponentHelper::getParams('com_languages')->get('site', 'en-GB');
$plugin = PluginHelper::getPlugin('system', 'languagefilter');
$pluginParams = json_decode($plugin->params);

if ($multilang) {
   ...
  if ($pluginParams->remove_default_prefix && $language->lang_code === $default_lang) {
        $language->link= preg_replace('|/' . $language->sef . '/|', '/', $language->link, 1);
   }
}

Or you could simply test PR #43858, which would fix this and has been waiting for 7 months now.

Since we have PR #43858 which fixes this, I'm closing this issue. Please test the PR, otherwise this will never be solved.