So I did a fresh quantal install and then (after installing kvm and
virtual machine manager and then adding user to the libvirtd group) .
The issue was present and when i checked getfacl /dev/kvm it had
group:---

Then after the reboot i checked getfacl again it had group:rw-
When i tried booting the vm using the Virtual Machine manager it worked!

So apparently  a reboot solved the issue.

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https://bugs.launchpad.net/bugs/1057024

Title:
  internal error Process exited while reading console log output: char
  device redirected to /dev/pts/1 error when creating a vm

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