diff --git a/extensions/cli/src/util/formatError.test.ts b/extensions/cli/src/util/formatError.test.ts
index 4dcc6f10129..d37770fd448 100644
--- a/extensions/cli/src/util/formatError.test.ts
+++ b/extensions/cli/src/util/formatError.test.ts
@@ -1,4 +1,8 @@
-import { formatError, formatAnthropicError } from "./formatError.js";
+import {
+  formatError,
+  formatAnthropicError,
+  extractNestedJsonMessage,
+} from "./formatError.js";
 
 describe("formatError", () => {
   it("should format Error objects correctly", () => {
@@ -135,6 +139,157 @@ describe("formatError", () => {
   });
 });
 
+/**
+ * Real shape from continuedev/continue#12945: an SDK error message that is
+ * a JSON envelope whose error.message is ITSELF a pretty-printed JSON
+ * string, hiding the actual cause two parse levels deep. Shared vector for
+ * the formatError and extractNestedJsonMessage suites.
+ */
+function quotaErrorMessageVector(): string {
+  const googleBody = JSON.stringify(
+    {
+      error: {
+        code: 429,
+        message:
+          "You exceeded your current quota, please check your plan and billing details. Please retry in 45.191226092s.",
+        status: "RESOURCE_EXHAUSTED",
+      },
+    },
+    null,
+    2,
+  );
+  return JSON.stringify({
+    error: {
+      message: `${googleBody}\n`,
+      code: 429,
+      status: "Too Many Requests",
+    },
+  });
+}
+
+describe("formatError nested Gemini-style JSON messages", () => {
+  it("extracts the innermost message from a double-nested JSON error", () => {
+    const error = new Error(quotaErrorMessageVector());
+    expect(formatError(error)).toBe(
+      "You exceeded your current quota, please check your plan and billing details. Please retry in 45.191226092s.",
+    );
+  });
+
+  it("extracts a single-level nested message", () => {
+    const error = new Error(
+      JSON.stringify({
+        error: { message: "Quota exceeded", status: "RESOURCE_EXHAUSTED" },
+      }),
+    );
+    expect(formatError(error)).toBe("Quota exceeded");
+  });
+
+  it("leaves a message-less nested error unchanged", () => {
+    const raw = JSON.stringify({ error: { status: "RESOURCE_EXHAUSTED" } });
+    expect(formatError(new Error(raw))).toBe(raw);
+  });
+
+  it("leaves a primitive-valued error field unchanged", () => {
+    const raw = JSON.stringify({ error: "Invalid API key" });
+    expect(formatError(new Error(raw))).toBe(raw);
+  });
+
+  it("leaves malformed JSON unchanged", () => {
+    expect(formatError(new Error("{invalid json"))).toBe("{invalid json");
+  });
+
+  it("leaves plain non-JSON messages unchanged", () => {
+    expect(formatError(new Error("socket hang up"))).toBe("socket hang up");
+  });
+
+  it("falls back to the raw message when the nested message is empty", () => {
+    // A blank extracted message is worse than the original envelope — the
+    // caller must keep the raw text rather than render an empty error.
+    const raw = JSON.stringify({ error: { message: "" } });
+    expect(formatError(new Error(raw))).toBe(raw);
+  });
+
+  it("extracts nested messages from raw string errors too", () => {
+    expect(formatError(quotaErrorMessageVector())).toBe(
+      "You exceeded your current quota, please check your plan and billing details. Please retry in 45.191226092s.",
+    );
+  });
+
+  it("extracts nested messages from plain-object message properties", () => {
+    expect(formatError({ message: quotaErrorMessageVector() })).toBe(
+      "You exceeded your current quota, please check your plan and billing details. Please retry in 45.191226092s.",
+    );
+  });
+});
+
+describe("extractNestedJsonMessage (direct vectors)", () => {
+  it("extracts the innermost message from the double-nested shape", () => {
+    expect(extractNestedJsonMessage(quotaErrorMessageVector())).toBe(
+      "You exceeded your current quota, please check your plan and billing details. Please retry in 45.191226092s.",
+    );
+  });
+
+  it("extracts a single-level nested message", () => {
+    expect(
+      extractNestedJsonMessage(
+        JSON.stringify({ error: { message: "Quota exceeded" } }),
+      ),
+    ).toBe("Quota exceeded");
+  });
+
+  it("returns undefined for message-less JSON", () => {
+    expect(
+      extractNestedJsonMessage(
+        JSON.stringify({ error: { status: "RESOURCE_EXHAUSTED" } }),
+      ),
+    ).toBeUndefined();
+  });
+
+  it("returns undefined for a primitive error field", () => {
+    expect(
+      extractNestedJsonMessage(JSON.stringify({ error: "Invalid API key" })),
+    ).toBeUndefined();
+  });
+
+  it("returns undefined for malformed JSON", () => {
+    expect(extractNestedJsonMessage("{invalid json")).toBeUndefined();
+  });
+
+  it("returns undefined for plain non-JSON text", () => {
+    expect(extractNestedJsonMessage("socket hang up")).toBeUndefined();
+  });
+
+  it("returns undefined for an empty or whitespace-only nested message", () => {
+    expect(
+      extractNestedJsonMessage(JSON.stringify({ error: { message: "" } })),
+    ).toBeUndefined();
+    expect(
+      extractNestedJsonMessage(JSON.stringify({ error: { message: "   " } })),
+    ).toBeUndefined();
+  });
+
+  /** nest(0) = "CORE"; nest(k) wraps nest(k-1) in one more JSON envelope. */
+  function nestedEnvelope(levels: number): string {
+    let raw = "CORE";
+    for (let i = 0; i < levels; i++) {
+      raw = JSON.stringify({ error: { message: raw } });
+    }
+    return raw;
+  }
+
+  it("fully unwraps envelopes nested within the depth cap", () => {
+    expect(extractNestedJsonMessage(nestedEnvelope(5))).toBe("CORE");
+  });
+
+  it("stops unwrapping at the depth cap on pathological nesting", () => {
+    // MAX_DEPTH = 8: a 10-level envelope stops with the level-2 envelope
+    // still intact — bounded work, never an unbounded parse chain.
+    expect(extractNestedJsonMessage(nestedEnvelope(10))).toBe(
+      nestedEnvelope(2),
+    );
+  });
+});
+
 describe("formatAnthropicError", () => {
   it("should format invalid API key authentication errors", () => {
     const error = new Error(
diff --git a/extensions/cli/src/util/formatError.ts b/extensions/cli/src/util/formatError.ts
index f806cfca9f4..52a642b25eb 100644
--- a/extensions/cli/src/util/formatError.ts
+++ b/extensions/cli/src/util/formatError.ts
@@ -1,18 +1,76 @@
+type JsonObject = Record<string, unknown>;
+
+function asJsonObject(value: unknown): JsonObject | undefined {
+  return typeof value === "object" && value !== null && !Array.isArray(value)
+    ? (value as JsonObject)
+    : undefined;
+}
+
+/**
+ * Extract the human-readable message nested inside a provider error blob.
+ *
+ * Gemini-style errors arrive as a JSON envelope ({ error: { message, code,
+ * status } }) whose error.message is often ITSELF a JSON string (see
+ * continuedev/continue#12945) — without extraction users see raw JSON or
+ * "Unknown error". Walks the nesting to the innermost message; returns
+ * undefined for non-JSON, malformed, or message-less input so callers keep
+ * the original text. Mirrors extractNestedGeminiError in
+ * packages/openai-adapters/src/apis/Gemini.ts (kept as a small local mirror
+ * with shared test vectors rather than a new cross-package export).
+ */
+export function extractNestedJsonMessage(raw: string): string | undefined {
+  // Bound the unwrap depth so a gateway returning deeply nested error
+  // envelopes cannot force unbounded sequential parses.
+  const MAX_DEPTH = 8;
+  let node: unknown;
+  try {
+    node = JSON.parse(raw);
+  } catch {
+    return undefined;
+  }
+
+  let message: string | undefined;
+  for (let depth = 0; depth < MAX_DEPTH; depth++) {
+    const obj = asJsonObject(node);
+    if (!obj) {
+      break;
+    }
+    const target = asJsonObject(obj.error) ?? obj;
+    if (typeof target.message !== "string") {
+      break;
+    }
+    message = target.message;
+    try {
+      node = JSON.parse(target.message.trim());
+    } catch {
+      break;
+    }
+  }
+
+  // A blank extracted message is worse than the original text — report
+  // "nothing found" so callers keep the raw envelope.
+  const trimmed = message?.trim();
+  return trimmed === undefined || trimmed === "" ? undefined : trimmed;
+}
+
 /**
  * Safely formats an error object into a readable string
  */
 export function formatError(error: any): string {
   if (error instanceof Error) {
-    return error.message;
+    return extractNestedJsonMessage(error.message) ?? error.message;
   }
 
   if (typeof error === "string") {
-    return error;
+    return extractNestedJsonMessage(error) ?? error;
   }
 
   if (error && typeof error === "object") {
     // Try to extract common error properties
     if (error.message) {
+      if (typeof error.message === "string") {
+        return extractNestedJsonMessage(error.message) ?? error.message;
+      }
       return error.message;
     }
     if (error.error) {