The suggested method did not work. After some struggle I figured that both workspace file and the central repository were damaged. I had to delete the workspace, recreate it, then I was able to update the components.
In retrospect, what has happened is that I opened the workspace twice, i.e. having two PSoC Creators opened the same workspace file. Then one of the PSoC Creator tried to update the components while other PSoC Creator is using the components, ended up damaging both the workspace file and the repository.
Strange thing about this is that the PSoC Creator creates temporary folder under
C:\Users\(user account)\Documents\PSoC Creator\4.1\Downloads ( 4.1).cylib
before it breaks, leaving the workspace file pointing the above directory. That is what the error message says.