[BUG] File edit diff tab no longer opens after VSCode update to 1.111

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?

After updating VSCode from version 1.105.0 to 1.111.0, the Claude Code extension no longer opens a full diff tab in the editor when Claude makes file edits. In VSCode 1.105.0, every file modification triggered a diff view in a new editor tab, allowing the user to review changes before accepting them. This behavior is broken after the VSCode update.

The Claude Code extension version is 2.1.74 (unchanged).

Downgrade also broken

Attempting to downgrade VSCode back to 1.105.0 causes the Claude Code extension to fail to load entirely.

What Should Happen?

File edits should open a full diff tab in the VSCode editor, as they did in VSCode 1.105.0.

Error Messages/Logs

Steps to Reproduce

Have VSCode 1.111.0 with Claude Code extension 2.1.74
Ask Claude to make any edit to a file
Observe that no diff tab opens in the editor

Claude Model

Sonnet (default)

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.1.74

Platform

Anthropic API

Operating System

Ubuntu/Debian Linux

Terminal/Shell

VS Code integrated terminal

Additional Information

OS: Linux (Ubuntu, kernel 6.8.0)
VSCode: 1.111.0 (worked in 1.105.0)
Claude Code extension: 2.1.74