Neon smithery fails to connect to MCP in Cursor

I'm having a nextjs project and trying to execute generated cli command by Smithery which looks like this:

npx -y @smithery/cli@latest run neon --config "{\"neonApiKey\":\"{API_KEY}\"}"


but when executed in cli cursor I'm getting back following error:

[Runner] Connecting to server: { id: 'neon', connectionTypes: [ 'stdio' ] }
[Runner] Starting child process setup...
[Runner] Executing: {
  command: 'npx',
  args: [
    '-y',
    '@neondatabase/mcp-server-neon',
    'init',
    '{API_KEY}'
  ]
}
(node:28884) ExperimentalWarning: CommonJS module /Users/andonmitev/.nvm/versions/node/v23.3.0/lib/node_modules/npm/node_modules/debug/src/node.js is loading ES Module /Users/andonmitev/.nvm/versions/node/v23.3.0/lib/node_modules/npm/node_modules/supports-color/index.js using require().
Support for loading ES Module in require() is an experimental feature and might change at any time
(Use `node --trace-warnings ...` to show where the warning was created)

[Runner] Child process error: Unexpected token 'R', "Replacing "... is not valid JSON


any ideas
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