[BUG] Diff opens as full-window takeover instead of a side-by-side split editor — regression in 2.1.168

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?

Environment

• Extension: anthropic.claude-code
• Version: 2.1.168 (darwin-arm64) — regressed from 2.1.165
• Editor: VS Code extension
• OS: macOS (Apple Silicon, Darwin 25.5)

Describe the bug
After updating from 2.1.165 to 2.1.168, when Claude makes a file change the diff now takes over the full editor area instead of opening as a side-by-side split editor on the right. Because the diff covers everything, the tab where I confirm/update the change is hidden, and I have to click back to that tab to act on it. On 2.1.165 the diff opened alongside my work as a split view, so I could review and confirm without losing my place.

Actual behavior
The diff takes over the full window, hiding the editing/confirm tab and forcing an extra click back.

Additional context

• Started immediately after the 2.1.165 → 2.1.168 update; not happening on 2.1.165.
• Changelog for 2.1.167 and 2.1.168 are both just "Bug fixes and reliability improvements," so this appears undocumented.
• No extension setting found to control diff placement (split vs. full-window).

What Should Happen?

Expected behavior
The diff opens as a side-by-side split editor on the right (the 2.1.165 behavior), keeping the editing/confirm tab visible — or a setting to control split vs. full-window diff display.

Error Messages/Logs

Steps to Reproduce

Steps to reproduce

1. On extension 2.1.168, ask Claude to make a file change.
2. Observe the diff opens full-window rather than as a right-side split pane.
3. To confirm/update, I have to manually click back to the editing tab.

Claude Model

None

Is this a regression?

Yes, this worked in a previous version

Last Working Version

2.1.165

Claude Code Version

2.1.44 (Claude Code)

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

Terminal.app (macOS)

Additional Information

_No response_