I updated my IDE to Android Studio Arctic Fox version and was facing this issue when I tried to sync gradle after the upgrade was complete:
"Unrecognized VM option 'MaxPermSize=512m' Error: Could not create the Java Virtual Machine. Error: A fatal exception has occurred. Program will exit.
"
I checked my java version, which was Java 17. I deleted my .gradle directory which didn't help. Reversed the gradle.properties changes made by the update. It didn't work either. I looked for maxPermSize value in my vm.studiooptions file. It wasn't there as suggested in some stackoverflow already asked questions.
Sharing the fix for this below.