It is the proper procedure, and it does come (in a lot of countries, AFAIK) with a lot of guardrails:
There will be a so-called "train order" allowing passage of a specific section ignoring the safety system warnings, which has strict validity limits both in time and in the area where it applies, usually denoted by specific hectometric mileposts
When cab signaling is involved (LZB is one of these) and it malfunctions, the entire system normally changes to "driving on sight only" - which indeed limits the train to 40, 30, 20, sometimes - 15 km/h (see https://fr.wikipedia.org/wiki/Marche_%C3%A0_vue) or the line gets switched to lineside signaling - if it is available.
I don't know how you could violate all of those rules - both from the driver's side and from the traffic control side - but it sounds absolutely horrible. Like an override of at least 2 (if not 3) very explicit safety margins.
(The following is speculation:) The issue is that there was still a fallback system operating (ASFA), so they likely assumed that there is still a safety system running, while actually it needed to be ignored, because due to virtual blocks of LZB there is then more than one train in a ASFA block. This means that the next signal shows you "clear", so you accelerate thinking you are back into normal operation, but there is actually a train in front of you, just not in the next block, but in your very own block, which is a situation that is not supposed to happen. So the issue is kind of different train control systems interacting disagreeing with each other. Ironically it would have been actual if there would not have been another safety system, because then they would have known, that they need to operate manually right away.
So they have lineside signaling as backup but it does not have blocks? That looks like misengineering, wow. Some reports said that the renfe train rolled for 25km - if this is what their fallback is like - it is absolutely inexcusable. Oh my...
There are audio recording from this incident where you can hear the "train orders" being given and acknowledged.
They were the wrong orders apparently.