Adding a project user group as valid users

The list of Valid users only contains global groups as shown below.

If you want to add project groups as valid users, the values are not shown in the drop down. Entering the value [Project1]\Usergroup throws the error
TF26204: The account you entered is not recognized. Contact your Team Foundation Server administrator to add your account.

If your project name is helloworld and usergroup name is testing, enter [project]\testing and save. Do not replace [project] with your project name.

View XML shows the following value after saving.