Title: VS Code extension hitting 1M context limit on 22MB project with Pro plan

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:
After downgrading from Max to Pro, Claude Code VS Code extension (v2.1.101) immediately hits the 1M context error on every message including "hello". The project is a React Native/Expo app with only 22MB of actual source files (node_modules deleted, android build artifacts deleted, .claude/worktrees deleted).
Environment:

OS: Windows 11
VS Code Claude Code extension: v2.1.101
Plan: Pro (previously worked on Max)
Project: React Native/Expo app (~22MB, 346 files excluding node_modules)

Steps to reproduce:

Downgrade from Max to Pro plan
Open project in VS Code with Claude Code extension
Type any message including "hello"
Immediately receive: API Error: Extra usage is required for 1M context

What I tried:

Created .claudeignore excluding package-lock.json, node_modules/, android/, dist/
Deleted node_modules/
Deleted android/app/build and android/app/.cxx
Deleted dist/
Deleted .claude/worktrees
Reloaded VS Code window multiple times
Relaunched terminal

Expected behavior: 22MB project should work within Pro's 200k context limit.
Actual behavior: 1M context error on every message.

What Should Happen?

It should not say I'm breaking the 1M context limit. This is a small project.

Error Messages/Logs

Steps to Reproduce

Ensure node_modules, android/build, and dist are all deleted
Open the project folder in VS Code with Claude Code extension v2.1.101
Be on the Pro plan (not Max)
Open Claude Code chat panel
Type "hello"
Immediately receive: API Error: Extra usage is required for 1M context · enable extra usage at claude.ai/settings/usage, or use --model to switch to standard context

Claude Model

Not sure / Multiple models

Is this a regression?

I don't know

Last Working Version

_No response_

Claude Code Version

2.1.105

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

Terminal.app (macOS)

Additional Information

_No response_