AV Foundation camera preview layer gets zoomed in, how to zoom out?

You see the same behaviour with the built-in iPhone Camera app. Switch between still and video capture modes and you'll notice that the default zoom level changes. You see a wider view in still mode, whereas video mode zooms in a bit.

My guess is that continuous video capture needs to use a smaller area of the camera sensor to work optimally. If it used the whole sensor perhaps the system couldn't sustain 30 fps. Using a smaller area of the sensor gives the effect of "zooming in" to the scene.

This is a function of the AVCaptureSession video preset, accessible by using the .sessionPreset property. For example, after configuring your captureSession, but before starting it, you would add

captureSession.sessionPreset = AVCaptureSessionPresetPhoto;

See the documentation here:

iOS Reference Document

The default preset for video is 1280x720 (I think) which is a lower resolution than the max supported by the camera. By using the "Photo" preset, you're getting the raw camera data.

I am answering my own question again. This was not answered even in Apple Dev forum, therefore I directly filed a technical support request from Apple and they have replied that this is a known issue and will be fixed and released with a future version. So there is nothing we can do more than waiting and see.