[BUG] Claude VSCode Extension: Chat output splits every word or character into a new line

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?

When using the Claude VSCode Extension chat, the agent's plain text output is split so that each word or character appears on a separate line. For example, if the answer should be "I'm doing well, thanks!", it appears as:

I'm
doing
well
,
thanks
!

This only affects the chat/plain text answers. Code blocks and editor outputs are not split.

What Should Happen?

Claude should produce chat answers as regular, properly formatted sentences.

Error Messages/Logs

No error messages appear. The issue is visual/output formatting only.

Steps to Reproduce

Open VSCode and the Claude VSCode Extension.

Ask the Claude agent a plain text question in the chat, like "How are you?".

The reply will be split so that each word or character appears on a new line, instead of in a normal sentence.

See attached screenshot for an example.

<img width="1296" height="763" alt="Image" src="https://github.com/user-attachments/assets/4a1318d4-c0ad-40b0-8c24-bfd16ab29df3" />

Claude Model

Sonnet (default)

Is this a regression?

Yes, this worked in a previous version

Last Working Version

idk

Claude Code Version

2.0.50 (Claude Code)

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

VS Code integrated terminal

Additional Information

Tried changing VSCode theme and updating extension, issue persists.

Issue affects only chat/message output, not code or formatted editor responses.

Attaching screenshot for reference (see below).