[BUG] API Error: Connection closed mid-response causes truncated/empty responses

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?

When running Claude Code in an existing project, responses frequently cut off with "API Error: Connection closed mid-response. The response above may be incomplete." This happens repeatedly across multiple tool calls (Bash, Read) within the same session — sometimes producing responses that are just a single character ("I") before erroring out. Separately, one session also hit "Failed to authenticate. API Error: 403 Request not allowed" before any response was generated.

What Should Happen?

Claude Code should complete responses and tool calls without the connection dropping mid-stream, and authentication should succeed without a 403 error.

Error Messages/Logs

API Error: Connection closed mid-response. The response above may be incomplete.
Failed to authenticate. API Error: 403 Request not allowed

Steps to Reproduce

1. Open a project directory (e.g. d:/Project/Freelancer/Python/IBKR) in Claude Code
2. Ask: "let me know about main idea's this project."
3. Claude begins responding, runs ls -la and Read README.md
4. Mid-response, the error "API Error: Connection closed mid-response" appears repeatedly, truncating output to single characters
5. Typing "continue" does not fully resolve it — the error recurs after subsequent tool calls

Note: On a separate occasion, the same prompt instead failed at the very first step with "Failed to authenticate. API Error: 403 Request not allowed"

Claude Model

None

Is this a regression?

Yes, this worked in a previous version

Last Working Version

2.1.220

Claude Code Version

2.1.223

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

VS Code integrated terminal

Additional Information

Attach the two screenshots showing the error sequence. Errors occurred in a project.