You say "using P = I2R , a constant current shows that P is directly proportional to R. Thus, if R increases, P increases.
Yes but if R increases I decreases (V=IR), reducing the power.
And as it depends on I2 then current "wins". The decrease in current outweighs the increase in R.
What the mark scheme is pointing to is
The power (heat) developed in the cell (internal resistance) is lost.
The power developed by the cell is emf x current delivered.
Power lost is I2r in the cell.
Power used is I2R in the external circuit.