[BUG] API Error: 529 {"type":"error","error":{"type":"overloaded_error","message":"Overloaded"},"request_id":"req_0

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?

Description

I encountered an API error when using Claude Code in VSCode:

API Error: 529
{
"type": "error",
"error": {
"type": "overloaded_error",
"message": "Overloaded"
},
"request_id": "req_0"
}

It seems like the request failed due to server overload, but the extension did not retry or handle the error gracefully.

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Environment

• OS: Windows 10
• VSCode version: (please fill)
• Claude Code extension version: (please fill)
• Model used: (e.g. claude-3.7-sonnet / opus / etc.)

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Steps to reproduce

1. Open VSCode
2. Use Claude Code extension
3. Send a prompt
4. Receive API Error 529 overloaded_error

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Expected behavior

The extension should either:

• retry automatically, or
• provide clearer guidance on retrying later

instead of returning a raw API error.

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Additional context

Please confirm whether this is expected behavior when the Claude API is overloaded, or if retry logic should be handled by the extension.

What Should Happen?

When the API returns a 529 overloaded_error response, the extension should:

• automatically retry the request with exponential backoff, or
• provide a clear message indicating that the server is temporarily overloaded and the user should retry later

instead of returning a raw API error without guidance.

Error Messages/Logs

API Error: 529 {"type":"error","error":{"type":"overloaded_error","message":"Overloaded"},"request_id":"req_0

Steps to Reproduce

1. Open VSCode
2. Launch Claude Code extension
3. Send a prompt to the model
4. The request fails with:

API Error: 529
{
"type": "error",
"error": {
"type": "overloaded_error",
"message": "Overloaded"
}
}

Claude Model

Sonnet (default)

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.1.94

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

VS Code integrated terminal

Additional Information

_No response_