diff --git a/vscode-extension/package.json b/vscode-extension/package.json
index a5b0e6912..9ead7bcdb 100644
--- a/vscode-extension/package.json
+++ b/vscode-extension/package.json
@@ -173,6 +173,7 @@
     "typescript": "^5.3.3"
   },
   "dependencies": {
+    "@vscode/python-extension": "^1.0.5",
     "oboe": "^2.1.5",
     "portfinder": "^1.0.32",
     "ufetch": "^1.6.0"
diff --git a/vscode-extension/src/extension.ts b/vscode-extension/src/extension.ts
index abaf2e7ff..b4788aa96 100644
--- a/vscode-extension/src/extension.ts
+++ b/vscode-extension/src/extension.ts
@@ -23,6 +23,7 @@ import {
 } from "./util";
 import { AIConfigEditorProvider } from "./aiConfigEditor";
 import { AIConfigEditorManager } from "./aiConfigEditorManager";
+import { PythonExtension } from "@vscode/python-extension";
 
 // This method is called when your extension is activated
 // Your extension is activated the very first time the command is executed
@@ -39,7 +40,7 @@ export function activate(context: vscode.ExtensionContext) {
   });
 
   const setupCommand = vscode.commands.registerCommand(COMMANDS.INIT, () => {
-    installDependencies(context, extensionOutputChannel);
+    initialize(context, extensionOutputChannel);
   });
   context.subscriptions.push(setupCommand);
 
@@ -570,16 +571,18 @@ async function installRequirements(
         vscode.window
           .showErrorMessage(
             `Failed to install dependencies. Pip exited with code ${code}. Please try again later`,
-            ...["Retry"]
+            ...["Select Interpreter", "Retry Install Dependencies"]
           )
           .then((selection) => {
-            if (selection === "Retry") {
+            if (selection === "Retry Install Dependencies") {
               installRequirements(
                 context,
                 progress,
                 cancellationToken,
                 outputChannel
               );
+            } else if (selection === "Select Interpreter") {
+              vscode.commands.executeCommand(COMMANDS.INIT);
             }
           });
         resolve(false);
@@ -906,3 +909,18 @@ async function shareAIConfig(
       });
   }
 }
+
+/**
+ * Selects a Python interpreter and initiates the dependency installation flow.
+ */
+async function initialize(
+  context: vscode.ExtensionContext,
+  outputChannel: vscode.LogOutputChannel
+) {
+  // Make sure Python API is activated
+  const pythonApi: PythonExtension = await PythonExtension.api();
+
+  await vscode.commands.executeCommand("python.setInterpreter");
+
+  installDependencies(context, outputChannel);
+}
diff --git a/vscode-extension/yarn.lock b/vscode-extension/yarn.lock
index c371c4881..788e06807 100644
--- a/vscode-extension/yarn.lock
+++ b/vscode-extension/yarn.lock
@@ -238,6 +238,11 @@
   resolved "https://registry.yarnpkg.com/@ungap/structured-clone/-/structured-clone-1.2.0.tgz#756641adb587851b5ccb3e095daf27ae581c8406"
   integrity sha512-zuVdFrMJiuCDQUMCzQaD6KL28MjnqqN8XnAqiEq9PNm/hCPTSGfrXCOfwj1ow4LFb/tNymJPwsNbVePc1xFqrQ==
 
+"@vscode/python-extension@^1.0.5":
+  version "1.0.5"
+  resolved "https://registry.yarnpkg.com/@vscode/python-extension/-/python-extension-1.0.5.tgz#881878006ad3f4b70e81b20d21a91f56dd577481"
+  integrity sha512-uYhXUrL/gn92mfqhjAwH2+yGOpjloBxj9ekoL4BhUsKcyJMpEg6WlNf3S3si+5x9zlbHHe7FYQNjZEbz1ymI9Q==
+
 "@vscode/test-cli@^0.0.4":
   version "0.0.4"
   resolved "https://registry.yarnpkg.com/@vscode/test-cli/-/test-cli-0.0.4.tgz#eeeb5620ff8b9eb31ae3e5b01af322ca68fcfaae"