diff --git a/extensions/markdown-language-features/src/languageFeatures/rename.ts b/extensions/markdown-language-features/src/languageFeatures/rename.ts
index 8a80906fbad..4184741a411 100644
--- a/extensions/markdown-language-features/src/languageFeatures/rename.ts
+++ b/extensions/markdown-language-features/src/languageFeatures/rename.ts
@@ -37,6 +37,14 @@ export interface MdWorkspaceEdit {
 	readonly fileRenames?: ReadonlyArray<MdFileRenameEdit>;
 }
 
+function tryDecodeUri(str: string): string {
+	try {
+		return decodeURI(str);
+	} catch {
+		return str;
+	}
+}
+
 export class MdRenameProvider extends Disposable implements vscode.RenameProvider {
 
 	private cachedRefs?: {
@@ -98,7 +106,7 @@ export class MdRenameProvider extends Disposable implements vscode.RenameProvide
 				if (!range) {
 					throw new Error(this.renameNotSupportedText);
 				}
-				return { range, placeholder: document.getText(range) };
+				return { range, placeholder: tryDecodeUri(document.getText(range)) };
 			}
 		}
 	}
diff --git a/extensions/markdown-language-features/src/test/rename.test.ts b/extensions/markdown-language-features/src/test/rename.test.ts
index e937c76574b..057e734131a 100644
--- a/extensions/markdown-language-features/src/test/rename.test.ts
+++ b/extensions/markdown-language-features/src/test/rename.test.ts
@@ -412,6 +412,16 @@ suite('markdown: rename', () => {
 		});
 	});
 
+	test('Path rename should use un-encoded paths as placeholder', async () => {
+		const uri = workspacePath('sub', 'doc with spaces.md');
+		const doc = new InMemoryDocument(uri, joinLines(
+			`[text](/sub/doc%20with%20spaces.md)`,
+		));
+
+		const info = await prepareRename(doc, new vscode.Position(0, 10), new InMemoryWorkspaceMarkdownDocuments([doc]));
+		assert.strictEqual(info!.placeholder, '/sub/doc with spaces.md');
+	});
+
 	test('Path rename should encode paths', async () => {
 		const uri = workspacePath('sub', 'doc.md');
 		const doc = new InMemoryDocument(uri, joinLines(