Restarting OS apparently helped at least with SMTP server installed on same OS. Will report if last restart helped solving other scenarios.
Still getting error even with successful settings:
SMTP AUTH extension not supported by server.
Traceback (most recent call last):
File "/home/frappe/frappe-bench/apps/frappe/frappe/email/queue.py", line 420, in send_one
smtpserver.sess.sendmail(email.sender, recipient.recipient, encode(message))
File "/home/frappe/frappe-bench/apps/frappe/frappe/email/smtp.py", line 195, in sess
(self.password or "").encode('utf-8'))
File "/usr/lib/python2.7/smtplib.py", line 585, in login
raise SMTPException("SMTP AUTH extension not supported by server.")
SMTPException: SMTP AUTH extension not supported by server.
Only localhost SMTP server works.
Reinstalled erpnext, will check if error keeps popping up.
After erpnext reinstall no SMTP related errors were noticed, but only for localhost smtp server install.