[BUG] Claude code in VS code conversation fills up instantly

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report (please file separate reports for different bugs)
• [x] I am using the latest version of Claude Code

What's Wrong?

Recently (as of yesterday), the VS code extension of Claude code is having bad context issues. After 1 or 2 questions I get:

This session is being continued from a previous conversation that ran out of context. The conversation is summarized below:

then immediately it shows the new conversation is at ~23%
Even using /clear and asking one question, it immediately runs out of context

seems like a bug in the current version

Identifier: anthropic.claude-code
Version: 2.0.31
Last Updated: 3 days ago
Size: 78.17MB

What Should Happen?

Claude should be able to handle more than one or two questions in a conversation

Error Messages/Logs

Steps to Reproduce

Just open claude and run a prompt. Right now I asked it to add new tests for code coverage. That was my only question, and it has reported "This session is being continued from a previous conversation that ran out of context. The conversation is summarized below:" at least 4 times in the same task

I've never had this issue until yesterday

Claude Model

Not sure / Multiple models

Is this a regression?

Yes, this worked in a previous version

Last Working Version

Pre 2.0.31

Claude Code Version

2.0.32 (Claude Code)

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

VS Code integrated terminal

Additional Information

I'm using version 2.0.31 (latest of the VS code extension). This does not match my claude CLI version of 2.0.32. So it could be that the VS code needs to be patched?

I may have to stop using the extension again and go back to the console version which tends to be much more stable it seems.