API error Usage credits required / Prompt too long in VSCode Claude Code plugin

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?

I am getting different errors:
API Error: Usage credits required for 1M context · turn on usage credits at claude.ai/settings/usage, or use --model to switch to standard context
and also
Prompt is too long
While the prompt realy isnt that large. example: "what's my current branch?"
Neither have i hit my usage limit, since im only on 15% for the session, and 2% for the week.

I'm on Pro
OS: MacOS Tahoe 26.5.1 Silicon M3

/version in the plugin doesnt work
claude --version on my terminal doesnt work either, i also never installed any type of binary so i dont imagine it should.
The plugin in VSCode is the latest: 2.1.165

I've restarted both VScode and the laptop. And while the plugin isn't working, the claude app works just fine.

What Should Happen?

I suppose the plugin should not give this error and continue with answering the prompt/executing commands

Error Messages/Logs

Steps to Reproduce

Open VSCode
Ask the claude code plugin a question

Claude Model

None

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

n/a

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

VS Code integrated terminal

Additional Information

_No response_