diff --git a/src/vs/base/parts/ipc/node/ipc.net.ts b/src/vs/base/parts/ipc/node/ipc.net.ts
index 9a508286e23..5ada7242262 100644
--- a/src/vs/base/parts/ipc/node/ipc.net.ts
+++ b/src/vs/base/parts/ipc/node/ipc.net.ts
@@ -318,6 +318,10 @@ export class WebSocketNodeSocket extends Disposable implements ISocket, ISocketT
 		return this._flowManager.recordedInflateBytes;
 	}
 
+	public setRecordInflateBytes(record: boolean): void {
+		this._flowManager.setRecordInflateBytes(record);
+	}
+
 	public traceSocketEvent(type: SocketDiagnosticsEventType, data?: VSBuffer | Uint8Array | ArrayBuffer | ArrayBufferView | unknown): void {
 		this.socket.traceSocketEvent(type, data);
 	}
@@ -598,6 +602,10 @@ class WebSocketFlowManager extends Disposable {
 		return VSBuffer.alloc(0);
 	}
 
+	public setRecordInflateBytes(record: boolean): void {
+		this._zlibInflateStream?.setRecordInflateBytes(record);
+	}
+
 	constructor(
 		private readonly _tracer: ISocketTracer,
 		permessageDeflate: boolean,
@@ -714,6 +722,7 @@ class ZlibInflateStream extends Disposable {
 	private readonly _zlibInflate: InflateRaw;
 	private readonly _recordedInflateBytes: VSBuffer[] = [];
 	private readonly _pendingInflateData: VSBuffer[] = [];
+	private _recordInflateBytes: boolean;
 
 	public get recordedInflateBytes(): VSBuffer {
 		if (this._recordInflateBytes) {
@@ -724,11 +733,12 @@ class ZlibInflateStream extends Disposable {
 
 	constructor(
 		private readonly _tracer: ISocketTracer,
-		private readonly _recordInflateBytes: boolean,
+		recordInflateBytes: boolean,
 		inflateBytes: VSBuffer | null,
 		options: ZlibOptions
 	) {
 		super();
+		this._recordInflateBytes = recordInflateBytes;
 		this._zlibInflate = createInflateRaw(options);
 		this._zlibInflate.on('error', (err: Error) => {
 			this._tracer.traceSocketEvent(SocketDiagnosticsEventType.zlibInflateError, { message: err?.message, code: (err as NodeJS.ErrnoException)?.code });
@@ -756,6 +766,13 @@ class ZlibInflateStream extends Disposable {
 		this._zlibInflate.write(buffer.buffer);
 	}
 
+	public setRecordInflateBytes(record: boolean): void {
+		this._recordInflateBytes = record;
+		if (!record) {
+			this._recordedInflateBytes.length = 0;
+		}
+	}
+
 	public flush(callback: (data: VSBuffer) => void): void {
 		this._zlibInflate.flush(() => {
 			this._tracer.traceSocketEvent(SocketDiagnosticsEventType.zlibInflateFlushFired);
@@ -764,6 +781,17 @@ class ZlibInflateStream extends Disposable {
 			callback(data);
 		});
 	}
+
+	public override dispose(): void {
+		this._recordedInflateBytes.length = 0;
+		this._pendingInflateData.length = 0;
+		try {
+			this._zlibInflate.close();
+		} catch {
+			// ignore errors while disposing
+		}
+		super.dispose();
+	}
 }
 
 class ZlibDeflateStream extends Disposable {
@@ -812,6 +840,16 @@ class ZlibDeflateStream extends Disposable {
 			callback(data);
 		});
 	}
+
+	public override dispose(): void {
+		this._pendingDeflateData.length = 0;
+		try {
+			this._zlibDeflate.close();
+		} catch {
+			// ignore errors while disposing
+		}
+		super.dispose();
+	}
 }
 
 function unmask(buffer: VSBuffer, mask: number): void {
diff --git a/src/vs/base/parts/ipc/test/node/ipc.net.test.ts b/src/vs/base/parts/ipc/test/node/ipc.net.test.ts
index a1bc9a5749a..6c96decef45 100644
--- a/src/vs/base/parts/ipc/test/node/ipc.net.test.ts
+++ b/src/vs/base/parts/ipc/test/node/ipc.net.test.ts
@@ -711,6 +711,47 @@ suite('WebSocketNodeSocket', () => {
 			assert.deepStrictEqual(actual, 'Hello');
 		});
 
+		test('setRecordInflateBytes(false) clears and stops recording', async () => {
+			const disposables = new DisposableStore();
+			const socket = disposables.add(new FakeNodeSocket());
+			// eslint-disable-next-line local/code-no-any-casts
+			const webSocket = disposables.add(new WebSocketNodeSocket(<any>socket, true, null, true));
+
+			const compressedHelloFrame = [0xc1, 0x07, 0xf2, 0x48, 0xcd, 0xc9, 0xc9, 0x07, 0x00];
+			const waitForOneData = () => new Promise<VSBuffer>(resolve => {
+				const d = webSocket.onData(data => {
+					d.dispose();
+					resolve(data);
+				});
+			});
+
+			const firstPromise = waitForOneData();
+			socket.fireData(compressedHelloFrame);
+			const first = await firstPromise;
+			assert.strictEqual(fromCharCodeArray(fromUint8Array(first.buffer)), 'Hello');
+			assert.ok(webSocket.recordedInflateBytes.byteLength > 0);
+
+			webSocket.setRecordInflateBytes(false);
+			assert.strictEqual(webSocket.recordedInflateBytes.byteLength, 0);
+
+			const secondPromise = waitForOneData();
+			socket.fireData(compressedHelloFrame);
+			const second = await secondPromise;
+			assert.strictEqual(fromCharCodeArray(fromUint8Array(second.buffer)), 'Hello');
+			assert.strictEqual(webSocket.recordedInflateBytes.byteLength, 0);
+
+			webSocket.setRecordInflateBytes(true);
+			assert.strictEqual(webSocket.recordedInflateBytes.byteLength, 0);
+
+			const thirdPromise = waitForOneData();
+			socket.fireData(compressedHelloFrame);
+			const third = await thirdPromise;
+			assert.strictEqual(fromCharCodeArray(fromUint8Array(third.buffer)), 'Hello');
+			assert.ok(webSocket.recordedInflateBytes.byteLength > 0);
+
+			disposables.dispose();
+		});
+
 		test('A fragmented compressed text message', async () => {
 			// contains "Hello"
 			const frames = [  // contains "Hello"
diff --git a/src/vs/server/node/extensionHostConnection.ts b/src/vs/server/node/extensionHostConnection.ts
index 6ae4edd84b9..0daf9ee7031 100644
--- a/src/vs/server/node/extensionHostConnection.ts
+++ b/src/vs/server/node/extensionHostConnection.ts
@@ -94,6 +94,7 @@ class ConnectionData {
 			skipWebSocketFrames = false;
 			permessageDeflate = this.socket.permessageDeflate;
 			inflateBytes = this.socket.recordedInflateBytes;
+			this.socket.setRecordInflateBytes(false);
 		}
 
 		return {
@@ -133,6 +134,9 @@ export class ExtensionHostConnection extends Disposable {
 		this._remoteAddress = remoteAddress;
 		this._extensionHostProcess = null;
 		this._connectionData = new ConnectionData(socket, initialDataChunk);
+		if (!this._canSendSocket && socket instanceof WebSocketNodeSocket) {
+			socket.setRecordInflateBytes(false);
+		}
 
 		this._log(`New connection established.`);
 	}
@@ -209,6 +213,9 @@ export class ExtensionHostConnection extends Disposable {
 	public acceptReconnection(remoteAddress: string, _socket: NodeSocket | WebSocketNodeSocket, initialDataChunk: VSBuffer): void {
 		this._remoteAddress = remoteAddress;
 		this._log(`The client has reconnected.`);
+		if (!this._canSendSocket && _socket instanceof WebSocketNodeSocket) {
+			_socket.setRecordInflateBytes(false);
+		}
 		const connectionData = new ConnectionData(_socket, initialDataChunk);
 
 		if (!this._extensionHostProcess) {
diff --git a/src/vs/server/node/remoteExtensionHostAgentServer.ts b/src/vs/server/node/remoteExtensionHostAgentServer.ts
index 269cc3878eb..da7e417cd5c 100644
--- a/src/vs/server/node/remoteExtensionHostAgentServer.ts
+++ b/src/vs/server/node/remoteExtensionHostAgentServer.ts
@@ -395,6 +395,9 @@ class RemoteExtensionHostAgentServer extends Disposable implements IServerAPI {
 
 		if (msg.desiredConnectionType === ConnectionType.Management) {
 			// This should become a management connection
+			if (socket instanceof WebSocketNodeSocket) {
+				socket.setRecordInflateBytes(false);
+			}
 
 			if (isReconnection) {
 				// This is a reconnection
@@ -484,6 +487,9 @@ class RemoteExtensionHostAgentServer extends Disposable implements IServerAPI {
 			}
 
 		} else if (msg.desiredConnectionType === ConnectionType.Tunnel) {
+			if (socket instanceof WebSocketNodeSocket) {
+				socket.setRecordInflateBytes(false);
+			}
 
 			const tunnelStartParams = <ITunnelConnectionStartParams>msg.args;
 			this._createTunnel(protocol, tunnelStartParams);