[BUG] MCP Tools never surfaced to the model inspite of the server being connected

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?

Summary

MCP servers defined in the project-level .mcp.json file show as "Connected" in the MCP servers panel, but their tools are never surfaced to the model (not present in the deferred tools list and cannot be invoked).

Environment

• Claude Code: VSCode extension (win32)
• OS: Windows 11 Enterprise 10.0.26100
• Model: claude-sonnet-4-6

Actual Behavior

Cloud MCP servers expose tools as mcp__<server>__<tool> in the model context.
Project-level MCP servers do NOT appear in the deferred tools list at all, despite showing Connected in the UI.

Workaround

Calling the underlying API directly (e.g. GitLab REST API via curl with a PAT).

What Should Happen?

Expected Behavior

Tools from project-level MCP servers (.mcp.json) should be callable, matching behavior of cloud MCP servers (e.g. claude.ai Atlassian, claude.ai Microsoft 365).

Error Messages/Logs

Steps to Reproduce

Steps to Reproduce

1. Add a project-level .mcp.json with an MCP server (e.g. @modelcontextprotocol/server-gitlab)
2. Restart Claude Code
3. Open MCP panel — server shows ✓ Connected
4. Ask Claude to use the server's tools — tools are not available

Claude Model

Sonnet (default)

Is this a regression?

I don't know

Last Working Version

_No response_

Claude Code Version

2.1.85

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

PowerShell

Additional Information

<img width="525" height="948" alt="Image" src="https://github.com/user-attachments/assets/5199fe43-ca9b-4f17-b86a-079129017b69" />
<img width="434" height="301" alt="Image" src="https://github.com/user-attachments/assets/4a57f4fb-cb0b-4a32-ae84-f7f961650e90" />