Can’t verify right now, but I would expect the project to appear at the bottom of the navigation list (in the the collapsed part) because it’s still marked as completed, despite no longer being archived.
If that’s the case, then it’s probably by design. Although it may indeed be more intuitive for the re-activation to un-complete the project automatically.
Update:
Verified this behavior is indeed what happens. I think it’s best to leave it as it is. Archiving a project means moving an already completed project to the archive. Let un-archiving simply mean the opposite - taking a completed project out of the archive.