Claude model in Agent mode completely non-functional in VS Code Copilot Chat - fails on all requests including simple messages

[jenya-vas]

When using Claude as the selected model in Agent mode in GitHub Copilot Chat (VS Code extension), requests that trigger tool calls fail with a 400 error indicating invalid JSON format in tool call arguments. Ask mode and other models both in ask and agent modes (GPT-5, Gemini 2.5) work without issues on identical requests.

`Sorry, your request failed. Please try again.

Copilot Request id: 0a0a4e31-bc20-4290-982c-db7fea498b24

GH Request Id: C251:15F35E:532F5C6:5FEEC0E:6931EDD2

Reason: Request Failed: 400 {"error":{"message":"Invalid JSON format in tool call arguments","code":"invalid_tool_call_format"}}

tried to sign off - sign in, checked the license ( business Copilot seat), reinstalled copilot extension, updated vs code - nothing seems to help.