[BUG] Claude Code CLI Isn't Detecting Project Scoped MCP Server

Environment

• Platform (select one):
• [x] Anthropic API

• Claude CLI version: 1.0.24 (Claude Code)
• Operating System: Ubuntu 22.04 (WSL)
• Terminal: Windows Terminal App (WSL)

Bug Description

Project scoped MCPs are no longer being detected when starting Claude in my project folder. I have had this working previously in other projects. I have tried creating the .mcp.json file myself in the project's root folder and I've also used the 'claude mcp add -s project -- xxx' command which successfully creates the .mcp.json file and returns a success message. When starting Claude, it does not show any MCP servers when using /mcp.

Steps to Reproduce

1. Created .mcp.json and used:

{
  "mcpServers": {
    "supabase": {
      "type": "stdio",
      "command": "npx",
      "args": [
        "-y",
        "@supabase/mcp-server-supabase@latest",
        "--access-token=xxx"
      ],
      "env": {}
    }
  }
}

1. Started Claude and checked /mcp. No servers detected.
2. Deleted .mcp.json
3. Used command claude mcp add supabase -s project -- npx -y @supabase/mcp-server-supabase@latest --access-token=xxx
4. Started Claude, used /mcp. No mcp servers detected.
5. 'Claude mcp list' also shows no mcp servers.

Actual Behavior

No MCP servers detected in Claude Code despite .mcp.json file being correctly created by command in step 5 above.

Additional Context