"Usage credits required for 1M context" error occurs despite standard 200K model/context selected and CLAUDE_CODE_DISABLE_1M_CONTEXT=1 set (VS Code extension)

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?

<img width="456" height="741" alt="Image" src="https://github.com/user-attachments/assets/99eae039-3cff-4ff4-b1e5-bd2597288578" />
<img width="965" height="392" alt="Image" src="https://github.com/user-attachments/assets/34cabf3f-b85a-4a91-9de7-bdbc92537ddb" />

I'm repeatedly hitting the error:

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

This happens even though:

1. /model shows "Default (recommended) – Sonnet 4.6" selected, no [1m] suffix on any model.
2. /context confirms claude-sonnet-4-6, 75.5k / 200.0k tokens (38%) — the standard 200K window, not 1M.
3. CLAUDE_CODE_DISABLE_1M_CONTEXT=1 is set in ~/.claude/settings.json (verified valid JSON).
4. Pro plan usage was at ~5% (weekly) / ~46% (5h session) per the Account & Usage dialog — nowhere near limits.
5. The task was a simple website redesign workflow (HTML/CSS edits, no large files, no heavy compute).

Steps to Reproduce:

1. Start a fresh Claude Code session in VS Code (after restarting the app and updating to 2.1.177).
2. Confirm /model = Default (Sonnet 4.6, no [1m]) and /context shows standard 200K window.
3. Work normally for a short time (a few edits/messages).
4. Error "Usage credits required for 1M context" appears and blocks further interaction.
5. /clear does not resolve it.

Expected behavior: Standard Pro plan usage with the standard 200K context window should never trigger a 1M-context entitlement error, regardless of session length, as long as no 1M model is selected.

Actual behavior: The error fires mid-session, blocking all further input, even though the visible model/context configuration is entirely standard.

Related issues: appears related to #62063, #63896, #64312, and #65514. The 2.1.172/2.1.173 changelog fix ("Fixed sessions using 1M context without usage credits getting permanently stuck") does not seem to fully resolve this for the VS Code extension — still reproducible on 2.1.177.

Additional notes: /bug command and "Report Issue" are not available in the VS Code extension, so filing here directly. Screenshots attached (Account & Usage dialog, error message, /model and /context output).

What Should Happen?

Standard Pro plan usage with the standard 200K context window should never trigger a 1M-context entitlement error, regardless of session length, as long as no 1M model is selected.

Error Messages/Logs

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

Steps to Reproduce

1. Start a fresh Claude Code session in VS Code (after restarting the app and updating to 2.1.177).
2. Run /model — confirm "Default (recommended) – Sonnet 4.6" is selected, no [1m] suffix on any option.
3. Run /context — confirms claude-sonnet-4-6, 75.5k / 200.0k tokens (38%), standard 200K window.
4. Confirm ~/.claude/settings.json contains "env": { "CLAUDE_CODE_DISABLE_1M_CONTEXT": "1" } (valid JSON).
5. Confirm Pro plan usage is far from limits (~5% weekly / ~46% 5h session) via Account & Usage dialog.
6. Work normally for a short time (a few edits/messages) on a website redesign task (HTML/CSS, no large files).
7. Error "Usage credits required for 1M context" appears mid-session and blocks further interaction.
8. /clear does not resolve it.

Claude Model

Sonnet (default)

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.1.177 (VS Code extension)

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

Terminal.app (macOS)

Additional Information

_No response_