diff --git a/packages/kilo-vscode/src/services/cli-backend/server-manager.ts b/packages/kilo-vscode/src/services/cli-backend/server-manager.ts
index 15b562e7fb..e3b5485021 100644
--- a/packages/kilo-vscode/src/services/cli-backend/server-manager.ts
+++ b/packages/kilo-vscode/src/services/cli-backend/server-manager.ts
@@ -208,7 +208,11 @@ export class ServerStartupError extends Error {
   }
 }
 
-function toErrorMessage(
+function stripAnsi(str: string): string {
+  return str.replace(/\x1b\[[0-9;]*m/g, "")
+}
+
+export function toErrorMessage(
   error: string,
   stderrLines: string[],
   cliPath?: string,
@@ -218,7 +222,11 @@ function toErrorMessage(
   error: string
 } {
   let lines = stderrLines.flatMap((line) => line.split("\n"))
-  const userMessage = [...lines].reverse().find((line) => line.trim() !== "") ?? error
+
+  const errorLine = lines.map(stripAnsi).find((line) => /Error:\s+/.test(line))
+  const userMessage = errorLine
+    ? errorLine.match(/Error:\s+(.+)/)![1].trim()
+    : stripAnsi([...lines].reverse().find((line) => line.trim() !== "") ?? error).trim()
 
   lines = [error, ...lines]
   if (cliPath && cliPath.trim() !== "") {
@@ -228,8 +236,8 @@ function toErrorMessage(
   const detailsText = lines.join("\n").trim()
 
   return {
-    userMessage: userMessage,
+    userMessage,
     userDetails: detailsText,
-    error: error,
+    error,
   }
 }
diff --git a/packages/kilo-vscode/tests/unit/server-manager-utils.test.ts b/packages/kilo-vscode/tests/unit/server-manager-utils.test.ts
index 84a1c5219e..c8ce28f025 100644
--- a/packages/kilo-vscode/tests/unit/server-manager-utils.test.ts
+++ b/packages/kilo-vscode/tests/unit/server-manager-utils.test.ts
@@ -1,5 +1,6 @@
 import { describe, it, expect } from "bun:test"
 import { parseServerPort } from "../../src/services/cli-backend/server-utils"
+import { toErrorMessage } from "../../src/services/cli-backend/server-manager"
 
 describe("parseServerPort", () => {
   it("parses port from standard CLI startup message", () => {
@@ -44,3 +45,61 @@ describe("parseServerPort", () => {
     expect(parseServerPort(output)).toBe(3000)
   })
 })
+
+describe("toErrorMessage", () => {
+  it("uses last non-empty stderr line as userMessage when no Error: line", () => {
+    const result = toErrorMessage("startup failed", ["line one", "line two", ""])
+    expect(result.userMessage).toBe("line two")
+  })
+
+  it("extracts message after Error: when present", () => {
+    const result = toErrorMessage("startup failed", ["some noise", "Error: something went wrong"])
+    expect(result.userMessage).toBe("something went wrong")
+  })
+
+  it("strips ANSI codes before matching Error:", () => {
+    const ansiError = "\x1b[91m\x1b[1mError: \x1b[0mConfig file at /path/kilo.json is not valid JSON(C):"
+    const result = toErrorMessage("startup failed", [ansiError])
+    expect(result.userMessage).toBe("Config file at /path/kilo.json is not valid JSON(C):")
+  })
+
+  it("finds Error: line anywhere, not just the last line", () => {
+    const result = toErrorMessage("startup failed", ["Error: the real problem", "subsequent noise", "more noise"])
+    expect(result.userMessage).toBe("the real problem")
+  })
+
+  it("falls back to last non-empty line when no Error: match", () => {
+    const result = toErrorMessage("startup failed", ["", "just some output", ""])
+    expect(result.userMessage).toBe("just some output")
+  })
+
+  it("falls back to error arg when stderr is empty", () => {
+    const result = toErrorMessage("startup failed", [])
+    expect(result.userMessage).toBe("startup failed")
+  })
+
+  it("strips ANSI from fallback last non-empty line", () => {
+    const result = toErrorMessage("startup failed", ["\x1b[31msome colored output\x1b[0m"])
+    expect(result.userMessage).toBe("some colored output")
+  })
+
+  it("includes error arg in userDetails", () => {
+    const result = toErrorMessage("startup failed", ["some output"])
+    expect(result.userDetails).toContain("startup failed")
+  })
+
+  it("includes CLI path in userDetails when provided", () => {
+    const result = toErrorMessage("startup failed", [], "/usr/local/bin/kilo")
+    expect(result.userDetails).toContain("CLI path: /usr/local/bin/kilo")
+  })
+
+  it("does not include CLI path in userDetails when not provided", () => {
+    const result = toErrorMessage("startup failed", [])
+    expect(result.userDetails).not.toContain("CLI path:")
+  })
+
+  it("returns original error string as error field", () => {
+    const result = toErrorMessage("startup failed", ["some output"])
+    expect(result.error).toBe("startup failed")
+  })
+})