diff --git a/src/integrations/editor/DiffViewProvider.ts b/src/integrations/editor/DiffViewProvider.ts
index d42eba082c..678b574a92 100644
--- a/src/integrations/editor/DiffViewProvider.ts
+++ b/src/integrations/editor/DiffViewProvider.ts
@@ -31,6 +31,9 @@ export class DiffViewProvider {
 	private documentWasOpen = false
 	private relPath?: string
 	private newContent?: string
+	// Original content used for the left (original) side of VS Code's diff.
+	// We may normalize trailing newline for display-only to improve hunk alignment.
+	private originalContentForDisplay?: string
 	private activeDiffEditor?: vscode.TextEditor
 	private fadedOverlayController?: DecorationController
 	private activeLineController?: DecorationController
@@ -69,8 +72,14 @@ export class DiffViewProvider {
 
 		if (fileExists) {
 			this.originalContent = await fs.readFile(absolutePath, "utf-8")
+			// Normalize trailing newline for display only to avoid false replace of last line
+			this.originalContentForDisplay = this.originalContent.endsWith("\n")
+				? this.originalContent
+				: this.originalContent + "\n"
 		} else {
 			this.originalContent = ""
+			// For new files, keep original empty to show all additions
+			this.originalContentForDisplay = this.originalContent
 		}
 
 		// For new files, create any necessary directories and keep track of new
@@ -554,7 +563,9 @@ export class DiffViewProvider {
 					return vscode.commands.executeCommand(
 						"vscode.diff",
 						vscode.Uri.parse(`${DIFF_VIEW_URI_SCHEME}:${fileName}`).with({
-							query: Buffer.from(this.originalContent ?? "").toString("base64"),
+							query: Buffer.from(this.originalContentForDisplay ?? this.originalContent ?? "").toString(
+								"base64",
+							),
 						}),
 						uri,
 						`${fileName}: ${fileExists ? `${DIFF_VIEW_LABEL_CHANGES}` : "New File"} (Editable)`,
diff --git a/webview-ui/src/utils/__tests__/parseUnifiedDiff.spec.ts b/webview-ui/src/utils/__tests__/parseUnifiedDiff.spec.ts
deleted file mode 100644
index a465891b11..0000000000
--- a/webview-ui/src/utils/__tests__/parseUnifiedDiff.spec.ts
+++ /dev/null
@@ -1,31 +0,0 @@
-import { parseUnifiedDiff } from "@/utils/parseUnifiedDiff"
-
-describe("parseUnifiedDiff - collapse identical -/+ pairs", () => {
-	it("collapses deletion+addition of identical text into a single context line", () => {
-		// Typical trailing-newline-only change at EOF with an additional appended line
-		const diff = ["@@ -1,1 +1,2 @@", "-old", "+old", "+new", ""].join("\n")
-
-		const lines = parseUnifiedDiff(diff)
-
-		// Should normalize the replace of identical line into context, plus the appended line
-		expect(lines.map((l) => l.type)).toEqual(["context", "addition"])
-		expect(lines[0].content).toBe("old")
-		expect(lines[1].content).toBe("new")
-		// Line numbers should be preserved appropriately
-		expect(lines[0].oldLineNum).toBe(1)
-		expect(lines[0].newLineNum).toBe(1)
-		expect(lines[1].oldLineNum).toBeNull()
-		expect(lines[1].newLineNum).toBe(2)
-	})
-
-	it("does not collapse when content differs (true replacement)", () => {
-		const diff = ["@@ -1,1 +1,1 @@", "-old", "+new", ""].join("\n")
-
-		const lines = parseUnifiedDiff(diff)
-
-		// Keep as deletion + addition for a real replacement
-		expect(lines.map((l) => l.type)).toEqual(["deletion", "addition"])
-		expect(lines[0].content).toBe("old")
-		expect(lines[1].content).toBe("new")
-	})
-})
diff --git a/webview-ui/src/utils/parseUnifiedDiff.ts b/webview-ui/src/utils/parseUnifiedDiff.ts
index 72bef6bb91..bed84c4ca9 100644
--- a/webview-ui/src/utils/parseUnifiedDiff.ts
+++ b/webview-ui/src/utils/parseUnifiedDiff.ts
@@ -88,37 +88,7 @@ export function parseUnifiedDiff(source: string, filePath?: string): DiffLine[]
 			prevHunk = hunk
 		}
 
-		// Collapse "- line" then "+ same line" pairs into a single context line.
-		// This normalizes diffs where the only change is adding a trailing newline
-		// (common when appending to a file missing EOF newline). VS Code's diff
-		// shows these as unchanged; our chat view should too.
-		const collapseReplacePairs = (input: DiffLine[]): DiffLine[] => {
-			const out: DiffLine[] = []
-			for (let i = 0; i < input.length; i++) {
-				const cur = input[i]
-				const next = input[i + 1]
-				if (
-					cur &&
-					next &&
-					cur.type === "deletion" &&
-					next.type === "addition" &&
-					cur.content === next.content
-				) {
-					out.push({
-						oldLineNum: cur.oldLineNum,
-						newLineNum: next.newLineNum,
-						type: "context",
-						content: cur.content,
-					})
-					i++ // skip the paired addition
-					continue
-				}
-				out.push(cur)
-			}
-			return out
-		}
-
-		return collapseReplacePairs(lines)
+		return lines
 	} catch {
 		// swallow parse errors and render nothing rather than breaking the UI
 		return []