[BUG] Claude Code Auth Deferring to API Use in VS Code

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?

<img width="906" height="477" alt="Image" src="https://github.com/user-attachments/assets/a43b6c91-c1ee-4292-acc4-a2117814088d" />

I am logging into Claude Code via OAuth (my Claude pro account) in VS Code but it is reverting to using a non-existent api key. This login is working for Claude Code in terminal but not in VS Code for some reason.

I have tried refreshing the window, logging out and back in, checking for a stray api key env variable, updating, and forcing login in settings, and nothing seems to work.

What Should Happen?

Claude should work in VS Code via my pro account

Error Messages/Logs

API Error: Rate limit reached

Steps to Reproduce

Try to login Claude Code in VS code with Pro Account (not api key)

Claude Model

Opus

Is this a regression?

Yes, this worked in a previous version

Last Working Version

All previous

Claude Code Version

2.1.77

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

VS Code integrated terminal

Additional Information

_No response_