[BUG] Session randomly dies with "API Error: Rate limit reached" despite near-zero usage

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?

Mid-session, Claude Code starts throwing API Error: Rate limit reached on every message in an active chat. Usage is at 2% session / 41% weekly — nowhere near any limit.

Restarting VS Code doesn't help. The specific chat is permanently broken. The only fix is opening a new chat — which means losing all session context.

This has happened multiple times. I lost days of work context because of this bug. There's no warning, no graceful degradation — the session just dies with a misleading error message.

Expected behavior: Either the session continues working, or the error message is accurate and reflects the real cause.

Actual behavior: Misleading rate limit error on a chat that never recovers, forcing a new session and complete loss of context.

Environment:

macOS
VS Code with Claude Code extension
Auth: Claude.ai Pro subscription

What Should Happen?

Either the session continues working, or the error message is accurate and reflects the real cause. Sessions should not permanently die mid-work with a misleading error.

Error Messages/Logs

No relevant logs found — Claude Code extension does not appear in the VS Code Output panel dropdown.

Steps to Reproduce

Start a long working session in Claude Code (VS Code extension)
Auth: Claude.ai Pro subscription, usage at ~2% session / ~41% weekly
Mid-session, every message starts returning "API Error: Rate limit reached"
Restarting VS Code does not fix it
The only workaround is opening a new chat — losing all session context permanently

Claude Model

Sonnet (default)

Is this a regression?

I don't know

Last Working Version

1.x.x (unknown)

Claude Code Version

1.x.x (unknown)

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

VS Code integrated terminal

Additional Information

_No response_