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In on-premises world, we use to create security enabled distribution lists to manage the user permissions inside SharePoint sites. but inside Office 365 we get these options for granting user permissions inside SharePoint sites:

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So is it fine/recommended to create separate Office 365 groups just to manage the users' permission inside SharePoint sites? or it will be overhead?

As currently we only have 2 communication SharePoint sites, so is it fine if we create 10 Office 365 groups to add them to different libraries and lists inside the 2 communication sites?

I know that creating Office 365 group will automatically create a SharePoint modern team site, so that's why I am asking if this will be an overhead in our case.

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If you just want to manage the permissions on SharePoint sites using groups, you can create Security groups.

You can find the differences between types of groups available at: Compare groups

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