diff --git a/packages/coding-agent/src/modes/interactive/components/diff.ts b/packages/coding-agent/src/modes/interactive/components/diff.ts
index 54e88273d..6c052df7b 100644
--- a/packages/coding-agent/src/modes/interactive/components/diff.ts
+++ b/packages/coding-agent/src/modes/interactive/components/diff.ts
@@ -20,14 +20,22 @@ function replaceTabs(text: string): string {
 
 /**
  * Compute word-level diff and render with inverse on changed parts.
- * Uses diffWords which groups whitespace with adjacent words for cleaner highlighting.
- * Strips leading whitespace from inverse to avoid highlighting indentation.
+ * Separates common indentation before diffing so a leading insertion cannot consume it.
  */
 function renderIntraLineDiff(oldContent: string, newContent: string): { removedLine: string; addedLine: string } {
-	const wordDiff = Diff.diffWords(oldContent, newContent);
+	let commonIndentLength = 0;
+	while (
+		commonIndentLength < oldContent.length &&
+		oldContent[commonIndentLength] === newContent[commonIndentLength] &&
+		/\s/.test(oldContent[commonIndentLength])
+	) {
+		commonIndentLength++;
+	}
 
-	let removedLine = "";
-	let addedLine = "";
+	const commonIndent = oldContent.slice(0, commonIndentLength);
+	const wordDiff = Diff.diffWords(oldContent.slice(commonIndentLength), newContent.slice(commonIndentLength));
+	let removedLine = commonIndent;
+	let addedLine = commonIndent;
 	let isFirstRemoved = true;
 	let isFirstAdded = true;
 
diff --git a/packages/coding-agent/test/diff.test.ts b/packages/coding-agent/test/diff.test.ts
new file mode 100644
index 000000000..00403a84c
--- /dev/null
+++ b/packages/coding-agent/test/diff.test.ts
@@ -0,0 +1,35 @@
+import { beforeAll, describe, expect, it } from "vitest";
+import { renderDiff } from "../src/modes/interactive/components/diff.ts";
+import { initTheme, theme } from "../src/modes/interactive/theme/theme.ts";
+import { stripAnsi } from "../src/utils/ansi.ts";
+
+describe("renderDiff", () => {
+	beforeAll(() => initTheme("dark"));
+
+	it.each([
+		{
+			name: "text is inserted at the start of a line",
+			diff: "-83   await commitRecordingChunk({\n+83   const result = await commitRecordingChunk({",
+			expected: ["-83   await commitRecordingChunk({", "+83   const result = await commitRecordingChunk({"],
+		},
+		{
+			name: "indented text is replaced",
+			diff: "-12     const value = oldValue\n+12     const value = newValue",
+			expected: ["-12     const value = oldValue", "+12     const value = newValue"],
+		},
+	])("preserves indentation when $name", ({ diff, expected }) => {
+		const rendered = renderDiff(diff);
+
+		expect(stripAnsi(rendered).split("\n")).toEqual(expected);
+	});
+
+	it("does not highlight shared indentation as an insertion", () => {
+		const rendered = renderDiff(
+			"-83   await commitRecordingChunk({\n+83   const result = await commitRecordingChunk({",
+		);
+		const inverseInsertion = theme.inverse("const result = ");
+
+		expect(rendered.indexOf("+83   ")).toBeLessThan(rendered.indexOf(inverseInsertion));
+		expect(rendered).toContain(inverseInsertion);
+	});
+});