On a Surface Pro 7 windows 10, changing the DPI compatibility by click "Program DPI" fixed this for me.

Yes i was testing if it had to do with those settings. It persists after rebooting.

All my other applications look perfectly fine.

I set my scale of mathematica to 75% else it is even worse the normal font then is way to large compared to the rest of my screen. But the relative small scaling of these labels in manipulate seem to be not affected by that.

If I set my system scale and layout to 100% everything is correctly in proportion. However than everything is so small i cant even read anything. So it seems that everything in the mathematica application is scaled correctly by the system scaling but not the manipulate labels.

Sorry for the necro, but I am also having issues in 12.1(.1).

In 12.0 there was an option in the Inspector -

Formatting Options->Font Options->Font Properties->Screen Resolution

that allowed a custom DPI, but this option is not present in 12.1. Can somebody direct me to it?

Thanks.