diff --git a/src/vs/workbench/browser/parts/editor/auxiliaryEditorPart.ts b/src/vs/workbench/browser/parts/editor/auxiliaryEditorPart.ts
index 81371393a8f..6125efa2388 100644
--- a/src/vs/workbench/browser/parts/editor/auxiliaryEditorPart.ts
+++ b/src/vs/workbench/browser/parts/editor/auxiliaryEditorPart.ts
@@ -303,6 +303,16 @@ export class AuxiliaryEditorPart {
 			}
 		}));
 
+		disposables.add(editorPart.onDidAddGroup(() => {
+			updateCompact(false); // leave compact mode when a group is added
+		}));
+
+		disposables.add(editorPart.activeGroup.onDidActiveEditorChange(() => {
+			if (editorPart.activeGroup.count > 1) {
+				updateCompact(false); // leave compact mode when more than 1 editor is active
+			}
+		}));
+
 		// Have a scoped instantiation service that is scoped to the auxiliary window
 		const scopedInstantiationService = disposables.add(scopedEditorPartInstantiationService.createChild(new ServiceCollection(
 			[IStatusbarService, this.statusbarService.createScoped(statusbarPart, disposables)]
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalActions.ts b/src/vs/workbench/contrib/terminal/browser/terminalActions.ts
index 1e628b884eb..cc2b9dbb55a 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalActions.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalActions.ts
@@ -360,7 +360,8 @@ export function registerTerminalActions() {
 		run: async (c) => {
 			const instance = await c.service.createTerminal({
 				location: {
-					viewColumn: AUX_WINDOW_GROUP
+					viewColumn: AUX_WINDOW_GROUP,
+					auxiliary: { compact: true },
 				},
 			});
 			await instance.focusWhenReady();
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalMenus.ts b/src/vs/workbench/contrib/terminal/browser/terminalMenus.ts
index a00daae29bc..02b1cfec7d1 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalMenus.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalMenus.ts
@@ -765,7 +765,8 @@ export function getTerminalActionBarArgs(location: ITerminalLocationOptions, pro
 	dropdownActions.push(disposableStore.add(new Action(TerminalCommandId.New, terminalStrings.new, undefined, true, () => terminalService.createAndFocusTerminal())));
 	dropdownActions.push(disposableStore.add(new Action(TerminalCommandId.NewInNewWindow, terminalStrings.newInNewWindow.value, undefined, true, () => terminalService.createAndFocusTerminal({
 		location: {
-			viewColumn: AUX_WINDOW_GROUP
+			viewColumn: AUX_WINDOW_GROUP,
+			auxiliary: { compact: true },
 		}
 	}))));
 	dropdownActions.push(disposableStore.add(new Action(TerminalCommandId.Split, terminalStrings.split.value, undefined, true, () => terminalService.createAndFocusTerminal({