How to format json response body in soap UI

Please check with your team or service provider.

Use JsonSlurper and JsonOutput:

import groovy.json.JsonSlurper
import groovy.json.JsonOutput

String response = $/        {
          "employee": "{\"name\":\"John\", \"age\":30, \"city\":\"New York\"}"
     }/$
     
def parsedResponse = new JsonSlurper().parseText(response)

String formattedResponse = parsedResponse 
    .with (JsonOutput.&toJson >> JsonOutput.&prettyPrint)

However, if that's really the response you're getting, it looks like the API has a problem, because it's sending the employee as a string instead of an object.

assert parsedResponse.'employee' instanceof String
assert parsedResponse.'employee' == '{\"name\":\"John\", \"age\":30, \"city\":\"New York\"}

 If that is really how the API works, you could do this:

import groovy.json.JsonSlurper
import groovy.json.JsonOutput

String response = $/        {
          "employee": "{\"name\":\"John\", \"age\":30, \"city\":\"New York\"}"
     }/$
     
def parsedResponse = new JsonSlurper().parseText(response)
parsedResponse.'employee' = new JsonSlurper().parseText(parsedResponse.'employee')

String formattedResponse = parsedResponse 
    .with (JsonOutput.&toJson >> JsonOutput.&prettyPrint)