I think this is a bit unreasonable. there are a lot of people applying to every job post. if a company can use AI to better filter the candidates, then it is an improvement.
there is issue only if AI is encoded with human bias, but treated as neutral and impartial judge
You're completely wrong.
"better" is an objective evaluation that you can do in a test, not in an interview with an AI.
And AIs always have human bias encoded, because it's trained on human data. That's a well known problem with no absolute solution.
Would you be okay with applicants using AI for these interviews? If I have thousands of applications out and I can use AI to better filter the companies I want to work for then it's an improvement.
Interview is a two-way communication. Just as companies evaluating the candidates, the candidates are also evaluating the company.
How would the company feels if the people applying uses AI avatar to answer the interview questions too?
No, it isn't remotely unreasonable. It is completely disrespectful of a candidate to make them "interview" with a bot. I'm not going to work for a company which disrespects me in that way right up front.