[BUG] VS Code extension - Thinking mode remains active after being turned off, rendering raw <thinking> tags in chat

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 using the VS Code extension, switching from Thinking ON → OFF during an ongoing conversation does not fully disable Thinking mode.

Although the UI toggle changes to OFF, the system continues to generate Thinking output internally. Instead of being properly hidden or formatted, this content is rendered as raw text inside <thinking></thinking> tags in the chat.

<img width="432" height="101" alt="Image" src="https://github.com/user-attachments/assets/42a09786-a3d1-40c2-87bd-efc5d5194e88" />

What Should Happen?

When Thinking mode is turned OFF, the system should stop generating any Thinking output starting from the next turn and ensure that no <thinking> blocks are included in responses.

Error Messages/Logs

Steps to Reproduce

• Open Claude Code extension in VS Code
• Start a new conversation
• Enable Thinking mode (ON)
• Send a few messages (ensure Thinking content appears correctly)
• Toggle Thinking mode to OFF
• Send another message in the same conversation

Claude Model

Sonnet (default)

Is this a regression?

I don't know

Last Working Version

_No response_

Claude Code Version

2.1.77

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

WSL (Windows Subsystem for Linux)

Additional Information

_No response_