diff --git a/src/vs/workbench/contrib/inlineChat/browser/inlineChatController.ts b/src/vs/workbench/contrib/inlineChat/browser/inlineChatController.ts
index e28b8cfc171..fedfdeeb3c2 100644
--- a/src/vs/workbench/contrib/inlineChat/browser/inlineChatController.ts
+++ b/src/vs/workbench/contrib/inlineChat/browser/inlineChatController.ts
@@ -205,6 +205,10 @@ export class InlineChatController implements IEditorContribution {
 			this._zone.value.setMargins(widgetPosition);
 		} else {
 			widgetPosition = this._strategy.getWidgetPosition() ?? this._zone.value.position ?? this._activeSession.wholeRange.value.getEndPosition();
+			const needsMargin = this._strategy.needsMargin();
+			if (!needsMargin) {
+				this._zone.value.setMargins(widgetPosition, 0);
+			}
 		}
 		this._zone.value.show(widgetPosition);
 	}
diff --git a/src/vs/workbench/contrib/inlineChat/browser/inlineChatStrategies.ts b/src/vs/workbench/contrib/inlineChat/browser/inlineChatStrategies.ts
index 6effff16c18..cc9836e8f8a 100644
--- a/src/vs/workbench/contrib/inlineChat/browser/inlineChatStrategies.ts
+++ b/src/vs/workbench/contrib/inlineChat/browser/inlineChatStrategies.ts
@@ -47,6 +47,8 @@ export abstract class EditModeStrategy {
 	abstract hasFocus(): boolean;
 
 	abstract getWidgetPosition(): Position | undefined;
+
+	abstract needsMargin(): boolean;
 }
 
 export class PreviewStrategy extends EditModeStrategy {
@@ -145,6 +147,10 @@ export class PreviewStrategy extends EditModeStrategy {
 	hasFocus(): boolean {
 		return this._widget.hasFocus();
 	}
+
+	needsMargin(): boolean {
+		return true;
+	}
 }
 
 class InlineDiffDecorations {
@@ -359,6 +365,10 @@ export class LiveStrategy extends EditModeStrategy {
 		return lastLineOfLocalEdits ? new Position(lastLineOfLocalEdits, 1) : undefined;
 	}
 
+	override needsMargin(): boolean {
+		return Boolean(this._session.lastTextModelChanges.length);
+	}
+
 	hasFocus(): boolean {
 		return this._widget.hasFocus();
 	}
diff --git a/src/vs/workbench/contrib/inlineChat/browser/inlineChatWidget.ts b/src/vs/workbench/contrib/inlineChat/browser/inlineChatWidget.ts
index f25ef458cfe..da046893374 100644
--- a/src/vs/workbench/contrib/inlineChat/browser/inlineChatWidget.ts
+++ b/src/vs/workbench/contrib/inlineChat/browser/inlineChatWidget.ts
@@ -797,10 +797,10 @@ export class InlineChatZoneWidget extends ZoneWidget {
 		this._ctxVisible.set(true);
 	}
 
-	public setMargins(position: Position): void {
+	private _calculateIndentationWidth(position: Position): number {
 		const viewModel = this.editor._getViewModel();
 		if (!viewModel) {
-			return;
+			return 0;
 		}
 		const visibleRange = viewModel.getCompletelyVisibleViewRange();
 		const startLineVisibleRange = visibleRange.startLineNumber;
@@ -815,7 +815,16 @@ export class InlineChatZoneWidget extends ZoneWidget {
 				break;
 			}
 		}
-		this._indentationWidth = this.editor.getOffsetForColumn(indentationLineNumber ?? positionLine, indentationLevel ?? viewModel.getLineFirstNonWhitespaceColumn(positionLine));
+		return this.editor.getOffsetForColumn(indentationLineNumber ?? positionLine, indentationLevel ?? viewModel.getLineFirstNonWhitespaceColumn(positionLine));
+	}
+
+	setMargins(position: Position, indentationWidth?: number): void {
+		if (indentationWidth === undefined) {
+			indentationWidth = this._calculateIndentationWidth(position);
+		}
+		if (this._indentationWidth === indentationWidth) {
+			return;
+		}
 		const info = this.editor.getLayoutInfo();
 		const marginWithoutIndentation = info.glyphMarginWidth + info.decorationsWidth + info.lineNumbersWidth;
 		const marginWithIndentation = marginWithoutIndentation + this._indentationWidth;