Claude Code v2.1.128: OTEL Isolation, MCP Fixes, .zip Plugins

Claude Code v2.1.128 is out with a solid batch of fixes and minor features. The headline changes: subprocesses no longer inherit OpenTelemetry environment variables, --plugin-dir now accepts .zip archives, and MCP reconnections no longer flood the conversation. Let's dig into the practical bits.

OTEL isolation for subprocesses

Subprocesses (Bash, hooks, MCP, LSP) no longer inherit OTEL_* environment variables. If you run an OTEL-instrumented app via the Bash tool, it won’t pick up the CLI’s own OTLP endpoint anymore. This is a clean break — your app’s telemetry stays separate from Claude Code’s.

Plugin improvements

--plugin-dir now accepts .zip plugin archives in addition to directories. Drop a .zip in your plugin directory and it’ll be loaded.
Headless --output-format stream-json's init.plugin_errors now includes --plugin-dir load failures, not just dependency demotions.
/plugin update was fixed — it now correctly detects new versions of npm-sourced plugins.

MCP updates

/mcp now shows the tool count for connected servers and flags servers that connected with 0 tools.
workspace is now a reserved server name. Existing servers named workspace will be skipped with a warning.
Reconnecting MCP servers no longer flood the conversation with full tool-name lists — re-announced tools are summarized by server prefix.
Fixed MCP tool results dropping images when the server returns both structured content and content blocks.
Fixed MCP stdio servers receiving corrupted arguments when CLAUDE_CODE_SHELL_PREFIX is set and an argument contains spaces or shell metacharacters.

Other notable changes

--channels now works with console (API key) authentication. Console orgs with managed settings must set channelsEnabled: true.
EnterWorktree now creates the new branch from local HEAD as documented, instead of origin/<default-branch>. Unpushed commits are no longer dropped.
Auto mode: when the classifier can't evaluate an action, the error includes a hint (retry, /compact, or run with --debug).
Parallel shell tool calls: a failing read-only command (grep, git diff, ls) no longer cancels sibling calls.
Fixed crash loop when piping very large input (>10 MB) to claude -p via stdin.
Fixed vim mode: Space in NORMAL mode now moves the cursor right, matching standard vi/vim behavior.
Fixed /rename without args failing on resumed sessions whose last entry is a compact boundary.
Fixed sub-agent progress summaries missing the prompt cache (roughly 3× cache_creation reduction).
Fixed sub-agent summaries firing repeatedly while a sub-agent's transcript is static, capping worst-case token cost on idle sub-agents.
Fixed Bedrock default model resolving to global.* instead of the region-appropriate prefix.