[BUG] Claude Code v2.1.160 forces 1M context on Windows VS Code, blocks session continuation after error

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?

Claude Code on Windows VS Code v2.1.160 defaults to 1M context mode immediately upon opening a new session, throwing "API Error: Usage credits required for 1M context" even after selecting "Default (recommended) - Sonnet 4.6" from the model picker. This blocks all work and prevents users from continuing sessions where they left off before the error.

The selection of a standard (non-1M) model does not resolve the error — Claude Code continues to force 1M context.

What Should Happen?

• Standard Sonnet 4.6 context should work without usage credits on Pro plan
• Selecting a standard model should immediately resolve the error
• User should be able to continue prior sessions without loss of context

Error Messages/Logs

Steps to Reproduce

1. Open a new Claude Code session in VS Code on Windows
2. Immediately receive "API Error: Usage credits required for 1M context"
3. Run /model and select "Default (recommended) - Sonnet 4.6"
4. Continue a task: "please continue where you left off before the error"
5. Error persists and blocks further work

Claude Model

Sonnet (default)

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.1.160

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

VS Code integrated terminal

Additional Information

Actual Behavior

• 1M context mode remains active despite model selection
• "Usage credits required" error persists and blocks all operations
• Session becomes unusable, forcing restart and losing conversation thread
• Users cannot resume work from prior context

Session Usage at Time of Error

• Session (5hr): 30%
• Weekly (7 day): 5%
• Plan: Claude Pro (no usage credits enabled)

Additional Notes

This appears to be the same issue as #62199, #62063, #63060, #63524, and others where Claude Code auto-defaults to 1M context model without user request and without proper Pro plan entitlement.

This represents a major workflow blocker for Windows users. Restarting sessions loses context continuity and is not an acceptable workaround.

Impact

• Complete workflow blockage
• Unable to continue sessions
• Loss of conversation context on restart