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I have been trying to fix this issue now for a while. I tried everything, uninstall/reinstalling Azure CLI tools extension, uninstalling/reinstalling vscode, but whenever I create a new .azcli or open an existing one, I get this message
az cli is already in path on all terminals:
In vscode Developer Tools these errors are logged while trying to activate the azure cli tools extension - attached the log file for your reference as well: