We have encountered this error after Salesforce Winter Release '26. As per Scratch Org Error Codes salesforce guide.
SH-0003 - Can't create scratch org from the org shape because it was created on a previous Salesforce release version and is outdated. Recreate the org shape and try again
The resolution is to delete existing Active Org shape (created in previous release) and create a new org shape (creating from the current release) in instance against which you are validating. In our case its an dev-hub.
Create and Manage Shape Orgs will have the detailed process to resolve for Creating and Managing the Shape Orgs
Follow the below steps to resolve the error.
Step 1: Authorize to dev-hub and run below command to list the Active Shape Org in dev-hub
sf org shape list
Step 2: Delete the existing shape org with the below command since it is created on older release.
sf org delete shape --target-org <username/alias>
This will expect an prompt to provide Yes/No.
Step 3: Create a new shape org with the below command. This will create a shape org with the same release (latest release) as that of dev-hub.
sf org create shape --target-org <source org username/alias>
These steps resolved our issue and helped us to proceed with deployment.