Bluetooth Intel 7260 not pairing with Microsoft 3600 mouse on Ubuntu 16.04

Question

My laptop has an Intel 7260 Wifi plus bluetooth. The Wifi works fine, but I can not pair my Microsoft 3600 bluetooth mouse with it on Ubuntu 16.04. That said, it does work with Ubuntu 16.10!

Because of that, I immediately thought that by upgrading to kernel 4.8 on Ubuntu 16.04, that I would solve my issue, but it did not.

I tried using the UI and bluetoothctl, but nothing worked. The process of pairing seems to go fine, the mouse LEDs blink as if it was normally paired, but in the end it doesn't move. What I've noticed is that dmesg shows this error after it fails to pair:

Bluetooth: SMP security requested but not available

So I guess it may be related to that. I also tried to compare the versions of drivers between 16.10 and 16.04, but they are all the same. I have no clue what to do. The following are some logs:

Now I'm running kernel 4.8.0-36 on Ubuntu 16.04.

lspci
08:00.0 Network controller: Intel Corporation Wireless 7260 (rev 73)
dmesg | grep Bluetooth
[   12.756322] toshiba_bluetooth: Toshiba ACPI Bluetooth device driver
[   12.817046] Bluetooth: Core ver 2.21
[   12.817059] Bluetooth: HCI device and connection manager initialized
[   12.817062] Bluetooth: HCI socket layer initialized
[   12.817064] Bluetooth: L2CAP socket layer initialized
[   12.817069] Bluetooth: SCO socket layer initialized
[   12.843287] Bluetooth: hci0: read Intel version: 370710018002030d00
[   12.848185] Bluetooth: hci0: Intel Bluetooth firmware file: intel/ibt-hw-37.7.10-fw-1.80.2.3.d.bseq
[   13.024080] Bluetooth: hci0: Intel Bluetooth firmware patch completed and activated
[   13.251153] Bluetooth: BNEP (Ethernet Emulation) ver 1.3
[   13.251154] Bluetooth: BNEP filters: protocol multicast
[   13.251157] Bluetooth: BNEP socket layer initialized
[   32.186991] Bluetooth: RFCOMM TTY layer initialized
[   32.186995] Bluetooth: RFCOMM socket layer initialized
[   32.186998] Bluetooth: RFCOMM ver 1.11
[  735.389939] Bluetooth: SMP security requested but not available
modinfo bluetooth
filename:       /lib/modules/4.8.0-36-generic/kernel/net/bluetooth/bluetooth.ko
alias:          net-pf-31
license:        GPL
version:        2.21
description:    Bluetooth Core ver 2.21
author:         Marcel Holtmann <marcel@holtmann.org>
srcversion:     25829AB27583956CC53D583
depends:

intree:         Y
vermagic:       4.8.0-36-generic SMP mod_unload modversions 
parm:           disable_esco:Disable eSCO connection creation (bool)
parm:           disable_ertm:Disable enhanced retransmission mode (bool)
modinfo iwlwifi
filename:       /lib/modules/4.8.0-36-generic/kernel/drivers/net/wireless/intel/iwlwifi/iwlwifi.ko
license:        GPL
author:         Copyright(c) 2003- 2015 Intel Corporation <linuxwifi@intel.com>
description:    Intel(R) Wireless WiFi driver for Linux
firmware:       iwlwifi-100-5.ucode
firmware:       iwlwifi-1000-5.ucode
firmware:       iwlwifi-135-6.ucode
firmware:       iwlwifi-105-6.ucode
firmware:       iwlwifi-2030-6.ucode
firmware:       iwlwifi-2000-6.ucode
firmware:       iwlwifi-5150-2.ucode
firmware:       iwlwifi-5000-5.ucode
firmware:       iwlwifi-6000g2b-IWL6000G2B_UCODE_API_MAX.ucode
firmware:       iwlwifi-6000g2a-6.ucode
firmware:       iwlwifi-6050-5.ucode
firmware:       iwlwifi-6000-6.ucode
firmware:       iwlwifi-7265D-24.ucode
firmware:       iwlwifi-7265-17.ucode
firmware:       iwlwifi-3168-24.ucode
firmware:       iwlwifi-3160-17.ucode
firmware:       iwlwifi-7260-17.ucode
firmware:       iwlwifi-8265-24.ucode
firmware:       iwlwifi-8000C--24.ucode
firmware:       iwlwifi-9260-th-a0-lc-a0--24.ucode
firmware:       iwlwifi-9260-th-a0-jf-a0--24.ucode
firmware:       iwlwifi-9000-pu-a0-lc-a0--24.ucode
firmware:       iwlwifi-Qu-a0-jf-b0--24.ucode
srcversion:     E7651FD3D9AF45F96CD8B2E
.....
depends:        cfg80211
intree:         Y
vermagic:       4.8.0-36-generic SMP mod_unload modversions 
parm:           swcrypto:using crypto in software (default 0 [hardware]) (int)
parm:           11n_disable:disable 11n functionality, bitmap: 1: full, 2: disable agg TX, 4: disable agg RX, 8 enable agg TX (uint)
parm:           amsdu_size:amsdu size 0: 12K for multi Rx queue devices, 4K for other devices 1:4K 2:8K 3:12K (default 0) (int)
parm:           fw_restart:restart firmware in case of error (default true) (bool)
parm:           antenna_coupling:specify antenna coupling in dB (default: 0 dB) (int)
parm:           nvm_file:NVM file name (charp)
parm:           d0i3_disable:disable d0i3 functionality (default: Y) (bool)
parm:           lar_disable:disable LAR functionality (default: N) (bool)
parm:           uapsd_disable:disable U-APSD functionality bitmap 1: BSS 2: P2P Client (default: 3) (uint)
parm:           bt_coex_active:enable wifi/bt co-exist (default: enable) (bool)
parm:           led_mode:0=system default, 1=On(RF On)/Off(RF Off), 2=blinking, 3=Off (default: 0) (int)
parm:           power_save:enable WiFi power management (default: disable) (bool)
parm:           power_level:default power save level (range from 1 - 5, default: 1) (int)
parm:           fw_monitor:firmware monitor - to debug FW (default: false - needs lots of memory) (bool)
parm:           d0i3_timeout:Timeout to D0i3 entry when idle (ms) (uint)
parm:           disable_11ac:Disable VHT capabilities (default: false) (bool)

Answer 1

I've managed to make it work. It is simular to this but it did not work with sspmode at first. So I tried doing this before pairing using the GUI, and it worked.

$ sudo hciconfig hci0 down
$ sudo hciconfig hci0 up
$ sudo hciconfig hci0 noauth