This implies that Google already knows that it's you when it shows the sign-in prompt on some 3rd party website and they are already tracking you there even though you are not signed in. Lovely. Not that you'd expected anything else from Google.
A further issue with this is that Google knows you're on that website because the referrer and request headers will have that on the IFrame request.
Edit. I think I replied on the wrong post here.
There's a fundamental conflict between privacy and convenience, because I have to either allow no third-party cookies, which means no one can embed any authenticated content from a third-party context (think Disqus comments on a blog), or I have to allow third-party tracking. The middle ground -- allowing some third-party cookies but not others -- is a UX nightmare. Just trying to explain the situation to an average user, at all, is nearly impossible, much less interrupting every visit to every site with "Can I use cookies from {site 2} here? How about {site 3,4,5...112}?".
Just confirmed this does seem to stop the annoying login popups from Medium, etc.
I tried to figure out how to disable that a few months ago but my google-fu was weak and it seemed like nobody knew how to do it.