I have found the answer here Link. If I add enableImplicitConversion: true along with the @Type decorator then it is working as expected.

export class UserDto extends AbstractDto {
    @Expose()
    email: string;

    @Expose()
    first_name: string;

    @Expose()
    last_name: string;

    @Expose()
    @Type(() => ProfileDto)
    profile: ProfileDto

}

Serializer:

const serialized = plainToClass(UserDto, user, {
    excludeExtraneousValues: true,
    enableImplicitConversion: true
    
});

So NestJS by default makes use of Typescript metadata emitted from decorators and the libraries class-transformer (abv. c-t) and class-validator (abv. c-v) for the body validation via the ValidaitonPipe. On compilation, Typescript will emit some metadata about the code, what parameters are in a method, if they have a class type, what metadata should be attached to them (designtype:params, req.body, etc), and other useful data that Nest or c-t/c-vreads at runtime. Nest uses some of this metadata to pass on proper values to the pipe, like what class type is set for a decorator (like your LoginDto) and what part of the request the value comes from (this is determined by @Body()/@Query()/@Param()/etc) and these are passed to the pipe in the second parameter of the transform() method under ArgumentMetadata. Then, the class type is passed on to c-t so that plainToInstance(ClassType, value) can be called to make a class instance of the LoginDto and then c-v's validate is called to validate that each parameter of the instance properly matches the @IsWhatever() decorators that are assigned to the property. Really interesting stuff.

I highly suggest you take a look at the emitted compiled JavaScript after running your build command to get a better idea of what is being emitted and thus read at runtime