Jenkins: ERROR: Failed to update

My dev machine was building code correctly, and everything was running. Unfortunately CI environment was throwing following exception.

[iTROPICS-TRUNK] $ "C:\Program Files\TortoiseHg/hg" --config auth.jenkins.prefix=* --config ******** --config ******** --config "auth.jenkins.schemes=http https" update --clean --rev default
abort: C:\Jenkins\Workspace\iTROPICS-TRUNK\src/TTC.iTropics.ServiceReferences/Service References/iTropicsBrokerBuildWS/TTC.iTropics.ServiceReferences.iTropicsBrokerBuildWS.com_tropics_webservice_iTropics_vo_current_common_WSGetAssociatedMiscProductsResponse.datasource: The system cannot find the path specified
ERROR: Failed to update
ERROR: Failed to update

It is because machine hit the maximum path length – 260 chars.