diff --git a/src/vs/workbench/contrib/chat/browser/actions/codeBlockOperations.ts b/src/vs/workbench/contrib/chat/browser/actions/codeBlockOperations.ts
index 3149f453..947199fc 100644
--- a/src/vs/workbench/contrib/chat/browser/actions/codeBlockOperations.ts
+++ b/src/vs/workbench/contrib/chat/browser/actions/codeBlockOperations.ts
@@ -11,6 +11,7 @@ import { ResourceMap } from '../../../../../base/common/map.js';
 import { isEqual } from '../../../../../base/common/resources.js';
 import * as strings from '../../../../../base/common/strings.js';
 import { URI } from '../../../../../base/common/uri.js';
+import { stripThinkTags } from '../../common/chatModel.js';
 import { IActiveCodeEditor, isCodeEditor, isDiffEditor } from '../../../../../editor/browser/editorBrowser.js';
 import { IBulkEditService, ResourceTextEdit } from '../../../../../editor/browser/services/bulkEditService.js';
 import { ICodeEditorService } from '../../../../../editor/browser/services/codeEditorService.js';
@@ -382,13 +383,11 @@ function collectDocumentContextFromContext(context: ICodeBlockActionContext, res
 }
 
 function getChatConversation(context: ICodeBlockActionContext): (ConversationRequest | ConversationResponse)[] {
-	// TODO@aeschli for now create a conversation with just the current element
-	// this will be expanded in the future to include the request and any other responses
-
 	if (isResponseVM(context.element)) {
 		return [{
 			type: 'response',
-			message: context.element.response.toMarkdown(),
+			// Strip think tags before computing diffs
+			message: stripThinkTags(context.element.response.toMarkdown()),
 			references: getReferencesAsDocumentContext(context.element.contentReferences)
 		}];
 	} else if (isRequestVM(context.element)) {
diff --git a/src/vs/workbench/contrib/chat/common/chatModel.ts b/src/vs/workbench/contrib/chat/common/chatModel.ts
index f11a40b7..ecb4d205 100644
--- a/src/vs/workbench/contrib/chat/common/chatModel.ts
+++ b/src/vs/workbench/contrib/chat/common/chatModel.ts
@@ -354,6 +354,36 @@ export class Response extends Disposable implements IResponse {
 	}
 }
 
+/**
+ * Strips <think> tags and their content from a text string.
+ * Handles nested tags using a stack-based approach.
+ * @param text The text to strip tags from
+ * @returns The text with all <think> tags and their content removed
+ */
+export function stripThinkTags(text: string): string {
+	// Handle nested tags with a stack-based approach
+	let result = '';
+	let depth = 0;
+	let i = 0;
+	
+	while (i < text.length) {
+		if (text.startsWith('<think>', i)) {
+			depth++;
+			i += 7; // length of '<think>'
+		} else if (text.startsWith('</think>', i)) {
+			depth--;
+			i += 8; // length of '</think>'
+		} else if (depth === 0) {
+			result += text[i];
+			i++;
+		} else {
+			i++;
+		}
+	}
+	
+	return result;
+}
+
 export class ChatResponseModel extends Disposable implements IChatResponseModel {
 	private readonly _onDidChange = this._register(new Emitter<void>());
 	readonly onDidChange = this._onDidChange.event;