Need help on PPPoE authentication using FreeRADIUS.

MT sends authentication request to FreeRADIUS; FreeRADIUS returns back with a Access-Accept response, however MT terminates the PPP session with the following error - authentication failed because of RADIUS timeout.

Using Wireshark and Packetsniffer, I can see MT does receive the response, but fails to process it. It appears the response never makes it to the CPU from the physical Ethernet interface.

Question, do I need to configure any special Firewall rule to route the RADIUS request to the CPU?

I guess you put too big timeout for /radius.
Keep it as 300ms. You do not need any specific rule.