Microsoft has released Visual Studio Code 1.105, the September 2025 update of its flagship code editor, bringing a range of AI-powered tools and workflow improvements. This version focuses on helping developers manage code conflicts more efficiently, streamline AI tool integration, and continue working seamlessly with Copilot Chat.

A key highlight of this release is the AI-assisted merge conflict resolution. When a file containing Git conflict markers is opened, VS Code now provides a contextual AI action within the editor. Activating it launches an intelligent workflow in the Chat view, where the AI analyzes both branches and the merge base to suggest or apply optimal resolutions — saving time and reducing manual effort.

Another major addition is the Model Context Protocol (MCP) server marketplace, integrated directly into the Extensions view. Through this new marketplace, users can browse, install, and manage MCP servers from the GitHub MCP Registry, creating a unified environment for deploying and using external AI tools within VS Code.

The release also refines how AI tools and extensions are identified. Fully qualified tool names are now supported in both prompt files and chat modes, reducing naming conflicts between built-in tools and those provided by MCP servers. A built-in code action helps developers easily migrate to the new naming system if they choose.

Beyond these core AI updates, version 1.105 delivers several productivity and accessibility upgrades:

• Copilot Chat continuity – Users can now resume previous chat sessions without losing context.

• GPT-5-Codex enhancements – AI “thinking tokens” are shown as expandable sections, offering insight into how suggestions were generated.

• Improved custom model integration – Updates to Bring Your Own Key (BYOK) tools allow smoother use of third-party AI models.

• Accessibility upgrades – The new accessibility.verboseChatProgressUpdates setting provides clearer narration for screen readers.

• Keyboard navigation for chat – Shortcuts make it easier to move through prompts and responses within active chat sessions.

• Enhanced testing agent – The runTests tool now reports code coverage, enabling the AI agent to ensure more comprehensive test generation.

• MacOS authentication support – Developers on Intune-enrolled M-series Macs can now sign in natively using Microsoft Authentication Library (MSAL).

With these features, Microsoft continues evolving VS Code into a more intelligent, interconnected development platform, merging local coding power with cloud-based AI orchestration. The release underlines the company’s commitment to integrating advanced reasoning models directly into the developer workflow — making everyday tasks faster, smarter, and more adaptive.