[BUG] Unable to use Claude Code in VS code using API key

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 I try to login to Claude code in VS code via an API key, it is asking for an authorization in the browser. After successfully authorizing the connection, in the chat pannel, the screen goes blank showing Signed in to the vs code. But, when i reload the developer window it is asking foir login again. This happens repeatedly

What Should Happen?

It should open a chat window with my API key logged in

<img width="1152" height="1355" alt="Image" src="https://github.com/user-attachments/assets/4c739163-ac3c-4536-8a25-4b4cf1a6870d" />

Error Messages/Logs

No error. It just goes blank saying signed in

Steps to Reproduce

Open VS code.
Install Claude for VS code extension
Sign in with API key
Authorize in the browser
Then you see the error

<img width="1152" height="1355" alt="Image" src="https://github.com/user-attachments/assets/c1a309ec-461b-4562-866a-1805d4169d0d" />

screenshot I attached

Claude Model

Not sure / Multiple models

Is this a regression?

No, this never worked

Last Working Version

_No response_

Claude Code Version

vs code extension

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

PowerShell

Additional Information

Please help me to use claude code in vs code