So I was searching online for quite sometime then I came across this solution, hope it works for you as well.

In the jest.config.js file, if you are using the moduleDirectories config change it from moduleDirectories: ['node_modules', './'] to moduleDirectories: ['node_modules', __dirname]

Look at the error message location carefully, and you will find that the issue is at the colon. The colon is used by TypeScript to define types, but this syntax is not recognized by JavaScript. So, the root cause is that Jest cannot parse TypeScript files. Jest requires specific presets to parse certain types of files. For Angular projects, you can use jest-preset-angular.

For how to integrate Jest into an Angular project, you can refer to the following steps:

1. Install jest
npm install jest jest-preset-angular @types/jest
2. In your project root, create file setup-jest.ts with the following content:
   import 'jest-preset-angular/setup-jest';
3. Create the jest.config.js file in your project root with the following content:

   Copymodule.exports = {
     preset: 'jest-preset-angular',
     setupFilesAfterEnv: ['<rootDir>/setup-jest.ts'],
     globalSetup: 'jest-preset-angular/global-setup',
   };
   

4. Adjust your tsconfig.spec.json in your project root

   Copy{
      "extends": "./tsconfig.json",  
      "compilerOptions": {  
         "outDir": "./out-tsc/spec",  
         "module": "CommonJs",  
         "types": ["jest"]  
      },  
      "include": ["src/**/*.spec.ts", "src/**/*.d.ts"]  
    };
   

5. update package.json file in your project root as below.

   Copy "test": "jest --verbose",
    "test:watch": "jest --watch"
   

6. Open your terminal and run command: npm run test, enjoy!

I was able to resolve this with two steps.

1. Install @angular-builders/jest if not using latest version of angular you may want to specify the version ie if on angular 16 run npm install @angular-builders/jest@16 otherwise just a npm install @angular-builders/jest will be enough
2. update the test.builder in angular.json config to use @angular-builders/jest:run

my final angular.json test config looks as follows:

"test": {
  "builder": "@angular-builders/jest:run",
  "options": {
    "polyfills": [
      "zone.js",
      "zone.js/testing"
    ],
    "tsConfig": "tsconfig.spec.json"
  }
}