[BUG] API Error: Rate limit reached on Pro Plan despite 61% usage - VS Code Extension v2.1.87

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?

Receiving "API Error: Rate limit reached" in the VS Code extension despite being on a Claude Pro subscription with only 61% usage consumed. The rate limit error appears immediately and blocks all requests.

Environment

• Plan: Claude Pro
• Claude Code VS Code Extension Version: 2.1.87
• Platform: VS Code

What Should Happen?

Requests should be processed normally. Claude.ai usage dashboard shows only 61% of plan quota used — well within limits.

Actual Behavior
Every request returns "API Error: Rate limit reached" in the VS Code extension. This appears to be the extension authenticating via API mode instead of honoring the active Pro subscription quota.

Error Messages/Logs

Steps to Reproduce

Steps to Reproduce

1. Open VS Code with Claude Code extension v2.1.87
2. Attempt to send any request to Claude Code
3. Receive "API Error: Rate limit reached" immediately

Claude Model

Sonnet (default)

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.1.87

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

VS Code integrated terminal

Additional Information

This seems related to previously reported issues #32286 and #33094 where the VS Code extension fails to recognize the active subscription tier and incorrectly applies API-level rate limits instead of the subscription quota.

As a paying Pro subscriber, this bug is consuming my plan's usage window unfairly. Requesting a usage reset or investigation into whether API credits were incorrectly billed.