Server refused public-key signature despite accepting key!

A new SFTP connection was not working, even though everything looked fine:

1. Permissions were correct on directories:
chmod go-w $HOME/
chmod 700 $HOME/.ssh
chmod 600 $HOME/.ssh/authorized_keys
chmod 600 $HOME/.ssh/id_rsa
chmod 644 $HOME/.ssh/id_rsa.pub
chmod 644 $HOME/.ssh/known_hosts

2. Keys were correctly placed

However, it still asked for password, whenever SFTP connection was done:

Using username "sftpuser".

Authenticating with public key "rsa-key-20150214"

Server refused public-key signature despite accepting key!

Using keyboard-interactive authentication.

Password:

I tried various things, none worked and I eventually went back to my notes for SFTP troubleshooting:

1. Correct Permissions

chmod go-w $HOME/

chmod 700 $HOME/.ssh

chmod 600 $HOME/.ssh/authorized_keys

chmod 600 $HOME/.ssh/id_rsa

chmod 644 $HOME/.ssh/id_rsa.pub

chmod 644 $HOME/.ssh/known_hosts

2. Make sure the owner:group on the directories and files is correct:

ls -ld  $HOME/

ls -ld  $HOME/.ssh

ls -ltr $HOME/.ssh

3. Login as root

chown user:group $HOME 

chown user:group $HOME/.ssh

chown user:group $HOME/.ssh/authorized_keys

chown user:group $HOME/.ssh/id_rsa

chown user:group $HOME/.ssh/id_rsa.pub

chown user:group $HOME/.ssh/known_hosts

4. Check for user entries in /etc/passwd and /etc/shadow

5. grep user /etc/shadow

When I did the 5th step, I found that /etc/shadow entry for the user didn't exist.  So I did these steps:

chmod 600 /etc/shadow

vi /etc/shadow

Insert this new line at the end

sftpuser:UP:::::::

Save File

chmod 400 /etc/shadow

It started working after that.