Microsoft’s Visual Studio Code just got a big upgrade with version 1.105. Released in early October 2025, this update adds several new features focused on making coding with AI smarter and easier. You can download the latest version for Windows, Mac, or Linux from the official site.

AI-Assisted Merge Conflict Resolution

One of the most useful additions is the ability to resolve merge conflicts with AI help. When you open a file with conflict markers from git, a new option appears in the bottom right corner of the editor. Clicking it opens a chat view that guides you through merging the code. The AI considers the common base and changes from each branch, helping you make decisions faster and with more confidence.

This feature aims to save time during those tricky merges, especially in large projects with many contributors. Instead of manually sorting through conflict markers, developers can now ask the AI for suggestions and explanations, streamlining the process.

Marketplace for MCP Servers and Better Tool Naming

Another big change is the introduction of a built-in marketplace for MCP servers. MCP, or Model Context Protocol, is a way to run different AI models inside VS Code. The new marketplace, accessible via the Extensions view, makes it easy to browse, install, and manage these servers. It’s powered by the GitHub MCP Registry, so users get a more integrated experience for AI tools.

Alongside this, Microsoft improved how tools are named in prompt files and chat modes. Now, fully qualified names include the MCP server or extension they come from. This helps prevent confusion if multiple tools have similar names. Developers can still use the old naming style, but a quick code action guides a smooth transition to the new format.

Enhanced AI Features and Developer Experience

The update also introduces a GPT-5-Codex model, which displays thinking tokens in chat responses. These tokens are expandable, so you can see how the AI arrived at its suggestions. This transparency can help with debugging and understanding AI outputs better.

Improvements extend to custom models, with better integration for Bring Your Own Key (BYOK) setups. New settings provide more detailed updates for screen readers, making chat sessions more accessible. Keyboard shortcuts now let you navigate chat prompts quickly, saving time during conversations.

If you’re working with the Copilot coding assistant, you’ll notice a new “Delegate to coding agent” button in the chat view. The runTests tool now reports test coverage, allowing the AI to generate and verify comprehensive tests for your code.

MacOS users on M-series devices who are enrolled in Intune can now sign in using a native Microsoft Authentication experience. This feature uses the Microsoft Authentication Library (MSAL) and improves login security and simplicity for Mac users.

Overall, VS Code 1.105 is packed with AI enhancements that aim to make coding faster, smarter, and more seamless. From resolving conflicts to managing AI servers and understanding model reasoning, these updates are geared toward improving developer productivity and experience.

Inspired by

• https://www.infoworld.com/article/4075822/visual-studio-code-taps-ai-for-merge-conflict-resolution.html

Sources

• gmpg.org
• visualstudio.com
• visualstudio.com
• github.com
• visualstudio.com