Visual Studio Code taps AI for merge conflict resolution

Visual Studio Code 1.105, the latest release of Microsoft’s popular Visual Studio Code editor, introduces several new AI coding features, including the ability to resolve merge conflicts with AI assistance, the ability to resume recent chat sessions, and the ability to install Model Context Protocol (MCP) servers from the MCP marketplace.

Announced October 9, VS Code 1.105, aka the September 2025 release, can be downloaded from code.visualstudio.com for Windows, Mac, and Linux.

Developers with VS Code 1.105 now are able to resolve merge conflicts with AI assistance, when opening a file with git merge conflict markers. This feature is available via a new action in the lower right-hand corner of the editor. Selecting this action opens the Chat view and begins an agentic flow with the merge base and changes from each branch as context.

VS Code 1.105 also introduces a built-in MCP marketplace that allows users to browse and install MCP servers from the Extensions view. This is enabled by the GitHub MCP Registry, providing an experience for discovering and managing MCP servers directly within the editor.

Another AI-related enhancement in the new VS Code release is support for fully qualified tool names in prompt files and chat modes, which aims to avoid naming conflicts between built-in tools and tools provided by MCP servers or extensions. Tool names are now qualified by the MCP server, extension, or tool set they are part of, Microsoft said. Developers can still use the previous notation, but a code action is available to help users migrate to the new names.

VS Code 1.105 follows the release of VS Code 1.104, which introduced automatic model selection for chat as well as enhanced agent security.

Other features highlighted in VS Code 1.105:

With the introduction of a GPT-5-Codex, thinking tokens are now shown in chat as expandable sections in the response. The ability to examine the model’s chain of thought can be useful for debugging or understanding suggestions the model provides, Microsoft said.

The set of edit tools for Bring Your Own Key (BYOK) custom models have been improved for better integration with VS Code’s built-in tools.

A new setting, accessibility.verboseChatProgressUpdates, enables more detailed announcements for screen reader users about chat activity.

To quickly navigate through chat prompts in the chat session, keyboard shortcuts have been added for navigating up and down through chat messages.

When working in a repository that has the Copilot coding agent enabled, the “Delegate to coding agent” button in the Chat view now appears by default.

The runTests tool now reports test code coverage to the agent. This enables the agent to generate and verify tests that cover the entirety of code.

MacOS native broker support for Microsoft Authentication now allows developers on MacOS devices now are able to sign in through a native experience. This applies only to M-series MacOS devices that are Intune-enrolled, and is done using the Microsoft Authentication Library (MSAL).