[FEATURE] Feature request: Inline diff with Keep/Undo buttons (like GitHub Copilot) in VS Code extension

Preflight Checklist

• [ ] I have searched existing requests and this feature hasn't been requested yet
• [x] This is a single feature request (not multiple features)

Problem Statement

When Claude Code proposes a file edit in the VS Code extension, it currently shows a side-by-side diff view along with a modal Accept/Reject permission prompt, rather than showing the change inline next to the affected code. For small or scattered edits across a file, this requires leaving the editing context and switching to a separate diff panel for every single change, which feels heavier than necessary and interrupts the flow of reviewing code.

Proposed Solution

Add an inline diff review experience similar to GitHub Copilot's, where:

Proposed changes appear inline in the editor, directly next to (or overlaid on) the affected lines, instead of only in a separate side-by-side diff panel.
Each change (or hunk) has its own Keep/Undo buttons shown directly in the editor gutter/margin.
Individual hunks can be accepted or rejected without leaving the file or opening a separate diff view, while the overall permission-prompt flow can remain available for reviewing the full change set at once.

Alternative Solutions

Keep the current side-by-side diff + modal permission prompt as the only review method (status quo) — works, but is slower for small/scattered edits.
Rely on Plan mode to review the full set of intended changes before Claude starts editing — helps for upfront review, but doesn't address reviewing each hunk inline as edits happen.
Rely on checkpoint/rewind to undo changes after the fact — useful as a safety net, but is a coarser, after-the-fact fix rather than an in-the-moment inline review.

Priority

Medium - Would be very helpful

Feature Category

Other

Use Case Example

_No response_

Additional Context

_No response_