[BUG] .claude/settings.json not properly respected

Environment

• Platform (select one):
• [X] Anthropic API
• [ ] AWS Bedrock
• [ ] Google Vertex AI
• [ ] Other: <!-- specify -->
• Claude CLI version: 1.0.5
• Operating System: MacOS 15.5
• Terminal: Warp

Bug Description

Claude Code consistently appears to ignore the .claude/settings.json file at root of the working directory I'm instantiating it in.

Our .claude/settings.json file looks as follows:

{
  "permissions": {
    "allow": [
      "Bash(bazel build:*)",
      "Bash(bazel query:*)",
      "Bash(bazel run:*)",
      "Bash(bazel test:*)",
      "Bash(cat:*)",
      "Bash(cd:*)",
      "Bash(cp:*)",
      "Bash(find:*)",
      "Bash(git *)",
      "Bash(gh *)",
      "Bash(grep:*)",
      "Bash(ls:*)",
      "Bash(mkdir:*)",
      "Bash(mv:*)",
      "Bash(rm:*)",
      "Bash(sed:*)",
      "WebFetch(domain:docs.anthropic.com)",
      "Edit(*)",
      "Write(*)",
      "Bash(*)",
      "Search(*)",
      "Read(*)",
      "List(*)"
    ],
    "deny": []
  },
  "dangerouslySkipPermissions": true
}

But tools listed above in the "allow" category frequently (but inconsistently!) ask for permission (in particular, Search tool use is most frequent).

An interesting clue is that the output of claude config list is different in the working directory than our settings.json file:

{
  "allowedTools": [
    "Bash(bazel build:*)",
    "Bash(bazel query:*)",
    "Bash(bazel run:*)",
    "Bash(bazel test:*)",
    "Bash(cat:*)",
    "Bash(cd:*)",
    "Bash(cp:*)",
    "Bash(find:*)",
    "Bash(gh pr view:*)",
    "Bash(gh pr:*)",
    "Bash(gh run view:*)",
    "Bash(git add CLAUDE.md)",
    "Bash(git add:*)",
    "Bash(git checkout:*)",
    "Bash(git commit:*)",
    "Bash(git fetch:*)",
    "Bash(git push:*)",
    "Bash(git rebase:*)",
    "Bash(git rm:*)",
    "Bash(grep:*)",
    "Bash(ls:*)",
    "Bash(mkdir:*)",
    "Bash(mv:*)",
    "Bash(rm:*)",
    "Bash(sed:*)"
  ],
  "dontCrawlDirectory": false,
  "hasTrustDialogAccepted": true,
  "hasCompletedProjectOnboarding": true,
  "ignorePatterns": []
}

This appears to be some sort of stale old cached version of my .claude/settings.local.json that has since been deleted.

Steps to Reproduce

1. <!-- First step -->
2. <!-- Second step -->
3. <!-- And so on... -->

Expected Behavior

<!-- What you expected to happen -->

Actual Behavior

<!-- What actually happened -->

Additional Context

<!-- Add any other context about the problem here, such as screenshots, logs, etc. -->