diff --git a/src/vs/editor/browser/widget/diffEditor/diffEditorWidget.ts b/src/vs/editor/browser/widget/diffEditor/diffEditorWidget.ts
index a655b5c8612..c3c798529ca 100644
--- a/src/vs/editor/browser/widget/diffEditor/diffEditorWidget.ts
+++ b/src/vs/editor/browser/widget/diffEditor/diffEditorWidget.ts
@@ -56,7 +56,7 @@ export interface IDiffCodeEditorWidgetOptions {
 export class DiffEditorWidget extends DelegatingEditor implements IDiffEditor {
 	public static ENTIRE_DIFF_OVERVIEW_WIDTH = OverviewRulerFeature.ENTIRE_DIFF_OVERVIEW_WIDTH;
 
-	private readonly elements = h('div.monaco-diff-editor.side-by-side', { style: { position: 'relative' } }, [
+	private readonly elements = h('div.monaco-diff-editor.side-by-side', { style: { position: 'relative', height: '100%' } }, [
 		h('div.editor.original@original', { style: { position: 'absolute', height: '100%', } }),
 		h('div.editor.modified@modified', { style: { position: 'absolute', height: '100%', } }),
 		h('div.accessibleDiffViewer@accessibleDiffViewer', { style: { position: 'absolute', height: '100%' } }),
@@ -344,7 +344,12 @@ export class DiffEditorWidget extends DelegatingEditor implements IDiffEditor {
 	private readonly _layoutInfo = derived(this, reader => {
 		const fullWidth = this._rootSizeObserver.width.read(reader);
 		const fullHeight = this._rootSizeObserver.height.read(reader);
-		this.elements.root.style.height = fullHeight + 'px';
+
+		if (this._rootSizeObserver.automaticLayout) {
+			this.elements.root.style.height = '100%';
+		} else {
+			this.elements.root.style.height = fullHeight + 'px';
+		}
 
 		const sash = this._sash.read(reader);
 
diff --git a/src/vs/editor/browser/widget/diffEditor/utils.ts b/src/vs/editor/browser/widget/diffEditor/utils.ts
index 3b968353291..76c37c4185d 100644
--- a/src/vs/editor/browser/widget/diffEditor/utils.ts
+++ b/src/vs/editor/browser/widget/diffEditor/utils.ts
@@ -96,6 +96,9 @@ export class ObservableElementSizeObserver extends Disposable {
 	private readonly _height: ISettableObservable<number>;
 	public get height(): IObservable<number> { return this._height; }
 
+	private _automaticLayout: boolean = false;
+	public get automaticLayout(): boolean { return this._automaticLayout; }
+
 	constructor(element: HTMLElement | null, dimension: IDimension | undefined) {
 		super();
 
@@ -115,6 +118,7 @@ export class ObservableElementSizeObserver extends Disposable {
 	}
 
 	public setAutomaticLayout(automaticLayout: boolean): void {
+		this._automaticLayout = automaticLayout;
 		if (automaticLayout) {
 			this.elementSizeObserver.startObserving();
 		} else {