Hi KARTHIK,
I am not sure if you have configure the MKL16Z64 to low power VLPS mode.
If you have read the Operation modes in Processor Expert, you will find the VLPS in below table:

Prior to enter VLPS mode you need to enter a VLPR mode, this is what is indicated in the mentioned document. To accomplish this you need to set a Clock Configuration for BLPE or BLPI mode checking the Very low power mode as enabled, here an example: (I also attached the project here so you can test it.)

You enter the Clock configuration calling the methods Cpu_SetClockConfiguration(); and Cpu_GetClockConfiguration();. After ensuring you are running the BLPI or BLPE configuration you call the Cpu_SetOperationMode(DOM_SLEEP, NULL, NULL) to enter VLPS mode. This is the normal behavior of the MCU you can check more information in the AN4503 document. Referring to it:
"STOP mode entry routine:
if in Run mode puts the processor into normal stop mode.
If in VLPR mode puts the processor into VLPS mode.
In this mode core, bus and peripheral clocks are disabled."
As you mentioned before it is possible to enter VLPS mode from Normal RUN mode but this is not implemented in Processor Expert.
Best Regards,
Robin
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