You are out of data storage space and minecraft is unable to save your progress

When playing in Beta 1.2.20.1, using new world or existing world, with or without experimental gameplay on, after a few minutes of playing the game crashes and you get this message:
"You are out of data storage space and minecraft is unable to save your progress."

I have over 3 GB of free space on my PC. This started yesterday when I first updated to Beta 1.2.20.1 build.

Unable to save any game progress as a result.