Error streaming edit diffs: Token limit reached. File/range likely too large for this edit

Before submitting your bug report

• I've tried using the "Ask AI" feature on the Continue docs site to see if the docs have an answer
• I believe this is a bug. I'll try to join the Continue Discord for questions
• I'm not able to find an open issue that reports the same bug
• I've seen the troubleshooting guide on the Continue Docs

Relevant environment info

- OS: Linux x64 
- Continue version: 1.2.1
- IDE version: VS Code 1.103.2
- Model: `deepseek-r1:8b` via ollama
- `config.yaml`:
  
name: Local Agent
version: 1.0.0
schema: v1
models:
  # DeepSeek with separate no thinking version, because other roles need speed
  - name: DeepSeek-R1 8b Thinking (local)
    provider: ollama
    model: deepseek-r1:8b
    roles: [chat]
    defaultCompletionOptions:
      contextLength: 8192 # 7.5 GB
  - name: DeepSeek-R1 8b NoThink (local)
    provider: ollama
    model: deepseek-r1:8b
    roles: [autocomplete, edit, apply]
    defaultCompletionOptions:
      contextLength: 8192 # 7.5 GB
    requestOptions:
        extraBodyProperties:
          think: false

Description

I can't understand why edit mode doesn't work. I work with very small file, 50 lines. I also have open (in other tabs) 2 other files, also very small. I tried to use Deepseek R1 8B with and without thinking. Neither works... It works properly in the chat mode, even if I copy-paste my code there.

BTW, can't find Continue: Enable Console, can't troubleshoot properly:

To reproduce

1. Setup ollama with deepseek-r1 8b in Continue
2. Open my file
3. Select some code
4. Use Ctrl+I to invoke the edit mode
5. Enter my command
6. It fails :(

Log output

Error output:
> Error streaming edit diffs: Token limit reached. File/range likely too large for this edit

Developer Tools error:

 ERR [Extension Host] Error handling webview message: {
  "msg": {
    "messageId": "64bdc51d-2467-4058-a62d-66e79da72427",
    "messageType": "edit/sendPrompt",
    "data": {
      "prompt": "I want to read newest HTML file in the directory",
      "range": {
        "range": {
          "start": {
            "line": 5,
            "character": 0
          },
          "end": {
            "line": 5,
            "character": 83
          }
        },
        "filepath": "file:///home/againpsychox/Public/Tools/CAN/run.ps1",
        "contents": "$pattern = '<tr[^>]*>.*\\n.*\\n.*>(\\d+)<.*\\n.*\\n.*\\n.*\\n.*\\n.*>(\\d+\\.\\d+\\.\\d+\\.\\d+)<'"
      }
    }
  }
}

Error: Error streaming edit diffs: Token limit reached. File/range likely too large for this edit

Start by reproducing the Ctrl+I edit flow with the reported Continue 1.2.1, VS Code, and Ollama configuration, then inspect the Developer Tools log around the edit/sendPrompt message and the streaming edit diffs error. Done means a small selected range can complete an edit without the token-limit failure, with the behavior covered by the relevant existing edit tests if available.