diff --git a/src/vs/workbench/contrib/inlineChat/browser/inlineChatController.ts b/src/vs/workbench/contrib/inlineChat/browser/inlineChatController.ts
index 7ae2f266adf..20d093f5228 100644
--- a/src/vs/workbench/contrib/inlineChat/browser/inlineChatController.ts
+++ b/src/vs/workbench/contrib/inlineChat/browser/inlineChatController.ts
@@ -1443,21 +1443,29 @@ export class InlineChatController2 implements IEditorContribution {
 		this._store.add(autorun(r => {
 			const response = lastResponseObs.read(r);
 
+			this._zone.value.widget.updateInfo('');
+
 			if (!response?.isInProgress.read(r)) {
+
+				if (response?.result?.errorDetails) {
+					// ERROR case
+					this._zone.value.widget.updateInfo(`$(error) ${response.result.errorDetails.message}`);
+					alert(response.result.errorDetails.message);
+				}
+
 				// no response or not in progress
 				this._zone.value.widget.domNode.classList.toggle('request-in-progress', false);
 				this._zone.value.widget.chatWidget.setInputPlaceholder(localize('placeholder', "Edit, refactor, and generate code"));
-				return;
-			}
 
-			this._zone.value.widget.domNode.classList.toggle('request-in-progress', true);
-			let placeholder = response.request?.message.text;
-
-			const lastProgress = lastResponseProgressObs.read(r);
-			if (lastProgress) {
-				placeholder = renderAsPlaintext(lastProgress.content);
+			} else {
+				this._zone.value.widget.domNode.classList.toggle('request-in-progress', true);
+				let placeholder = response.request?.message.text;
+				const lastProgress = lastResponseProgressObs.read(r);
+				if (lastProgress) {
+					placeholder = renderAsPlaintext(lastProgress.content);
+				}
+				this._zone.value.widget.chatWidget.setInputPlaceholder(placeholder || localize('loading', "Working..."));
 			}
-			this._zone.value.widget.chatWidget.setInputPlaceholder(placeholder || localize('loading', "Working..."));
 
 		}));
 
diff --git a/src/vs/workbench/contrib/inlineChat/browser/media/inlineChat.css b/src/vs/workbench/contrib/inlineChat/browser/media/inlineChat.css
index 443ba1eb217..83aa2b47e3e 100644
--- a/src/vs/workbench/contrib/inlineChat/browser/media/inlineChat.css
+++ b/src/vs/workbench/contrib/inlineChat/browser/media/inlineChat.css
@@ -191,7 +191,7 @@
 .monaco-workbench .inline-chat > .status {
 	.label,
 	.actions {
-		padding-top: 8px;
+		padding: 4px 0;
 	}
 }
 
@@ -202,14 +202,13 @@
 .monaco-workbench .inline-chat .status .label {
 	overflow: hidden;
 	color: var(--vscode-descriptionForeground);
-	font-size: 11px;
+	font-size: 12px;
 	display: flex;
 	white-space: nowrap;
 }
 
 .monaco-workbench .inline-chat .status .label.info {
 	margin-right: auto;
-	padding-left: 2px;
 }
 
 .monaco-workbench .inline-chat .status .label.status {