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There is no "fix" for this. It's an inherent issue that exists in all 3D software, from game engines to multi thousand dollar DCCs like Maya.
Dreams uses single floating point precision. That's as good as you're going to get on the PS4s limited hardware. However, even with double floating point precision, it's still an issue that exists. This may be possible on the PS5, but unlikely if they want dreams to be playable on both systems. Most other game engines use singles anyway.
That said, you have three options:
Build at a large scale for micro precision, at the cost of world size.
Build at a small scale for increased world size, at the cost of micro precision.
Or use the tricks many large open world games use, and keep the player near the origin and move the world.