[BUG] Claude Code process exited with code 3

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?

Claude code runs fine in terminal but not ide extension in VS Code or Cursor. Terminal is fine but I cannot paste images and I just want the ability to use the extension like I am with codex. Unfortunately with this issue I'm just using codex a lot more than claude code. When I open Claude Code extension it opens up a tab and looks normal but then this error pops up at the top in red text: Error: Claude Code process exited with code 3. I've searched for solutions but it doesn't seem to be a widespread issue so not sure why I cannot fix it via uninstalling, restarting, reinstalling etc. I've made sure I'm logged in. Since I'm having good experience with codex and prefer using the ide extension I'm probably just going to reduce my anthropic plan to the minimum from the $200 plan now unless this get's resolved. I already had moved on but just tried again to see if cursor updates or claude code fixes would have made a difference which it hasn't.

<img width="270" height="523" alt="Image" src="https://github.com/user-attachments/assets/600d0e28-8a84-410a-9dc7-d8ab24979d56" />

What Should Happen?

Claude code IDE extension should load and as long as I'm logged into my subscription it works by responding when I submit a prompt. Instead I get the error and if i submit a prompt it just spins and says it's doing stuff but never responsds.

Error Messages/Logs

Steps to Reproduce

Open claude code extension tab, it loads like normal, then error pops up at the top. Then never responds to prompts except saying it's working on it.

Claude Model

Opus

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.0.42

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

Cursor

Additional Information

_No response_