Microsoft has released the new August 2025 (version 1.104) update for Visual Studio Code introducing auto model selection in the chat feature which automatically picks the best model to optimize performance and avoid rate limits.
The feature, which selects between Claude Sonnet 4, GPT-5, GPT-5 mini, GPT-4.1, and Gemini Pro 2.5, is currently in preview and is rolling out to GitHub Copilot users with individual plans. The auto model selection applies a variable model multiplier and a 10% request discount for paid users. Organizations also have the option to disable access to certain models.
The update also brings new security measures for AI agents. A new setting, chat.tools.edits.autoApprove, requires explicit user confirmation before an agent can edit sensitive files like configuration files.
The terminal auto-approve feature has also been improved with new settings and a required explicit user opt-in for security. The chat.tools.global.autoApprove setting was also changed to a clearer name and now includes a warning to deter accidental activation.
These new features address potential security risks associated with autonomous AI agents. The explicit warnings and opt-in requirements are a direct response to observed user behavior and misconceptions.
The update includes numerous productivity and user experience improvements too. A new AGENTS.md file can be used to provide context and instructions for AI agents and the TODO comment now shows a Code Action to quickly initiate a coding agent session.
The chat and terminal experiences have also been polished with features like collapsed file list, multi-session support, and improved terminal IntelliSense. Some of these features are still experimental, and many of the improvements in this release are enabled by default.
The update introduces improvements beyond AI-assisted features. Math rendering in chat responses is now generally available and enabled by default using KaTeX. The window.border setting on Windows allows for a colored border around the VS Code window, and tab indexing can be displayed with workbench.editor.showTabIndex. The Python extension has received updates, including AI-powered hover summaries with Pylance and improved environment variable handling. Finally, bower.json Intellisense has been removed due to low usage since Bower was deprecated in 2017.
If you want to see the full in-depth changelog, check out Microsoft’s page for this version.