VS Code extension shows edit confirmation dialog despite bypassPermissions

Bug

The VS Code Claude Code extension shows "Make this edit to [file]?" confirmation dialogs for files outside the workspace root, even when all bypass settings are correctly configured. This blocks autonomous workflows and slows down interactive sessions.

Environment

• Claude Code: v2.1.92
• VS Code: latest
• macOS: Darwin 25.3.0 (Apple Silicon)
• Extension: Claude Code (VS Code native)

Configuration (all set correctly)

~/.claude/settings.json (global):

{
  "permissions": {
    "allow": ["mcp__*"],
    "defaultMode": "bypassPermissions",
    "additionalDirectories": [
      "/Users/me/.claude",
      "/Users/me/Documents/ProjectA",
      "/Users/me/Documents/ProjectB",
      "/tmp"
    ]
  },
  "skipDangerousModePermissionPrompt": true
}

Project .claude/settings.json:

{
  "permissions": {
    "allow": ["Bash(*)", "Read(*)", "Write(*)", "Edit(*)", "Glob(*)", "Grep(*)"],
    "defaultMode": "bypassPermissions"
  }
}

VS Code settings:

{
  "claudeCode.allowDangerouslySkipPermissions": true,
  "claudeCode.initialPermissionMode": "bypassPermissions"
}

Steps to Reproduce

1. Open VS Code in project at ~/Documents/ProjectA
2. Start Claude Code session in the VS Code panel
3. Ask Claude to edit a file outside the workspace root (e.g., ~/.claude/settings.json)
4. Dialog appears: "Make this edit to settings.json? 1 Yes / 2 No"

Expected Behavior

No confirmation dialog. All bypass settings are enabled, the target directory is in additionalDirectories, and allowDangerouslySkipPermissions is true.

Actual Behavior

Confirmation dialog appears every time for files outside the workspace root. This happens regardless of which combination of bypass settings is enabled.

Workarounds

• Headless CLI (claude -p --dangerously-skip-permissions) works correctly -- no prompts.
• Only the VS Code extension panel triggers the dialog.

Impact

• Blocks autonomous multi-repo workflows where Claude needs to edit shared config files
• Slows down interactive sessions with unnecessary click-through dialogs
• Forces users to choose between VS Code integration and fully autonomous operation