Can't install SDK from VS Code - fatal: --filter can only be used when extensions.partialClone is set

I'm trying to install the latest SDK using the nRF Connect extension for VS Code on Windows 10. I've previously installed it from nRF Connect Toolchain Manager for Desktop.

The list of available SDKs shows up and when I select the latest stable (as of today) 2.5.0 it asks where I want to install it. c:\ncs is already selected (not sure why, but my previous SDKs are there too). When I continue I get this error message in the output window:

[west]: updating c:\ncs\v2.5.0...

[west]: === updating zephyr (zephyr):
[west]: --- zephyr: initializing
[west]: Initialized empty Git repository in C:/ncs/v2.5.0/zephyr/.git/
[west]: --- zephyr: fetching, need revision v3.4.99-ncs1
[west]: fatal: --filter can only be used when extensions.partialClone is set
[west]: FATAL ERROR: command exited with status 128: fetch -f --filter=tree:0 -- github.com/.../sdk-zephyr v3.4.99-ncs1

[west]: exited with code 128.

Any ideas? I also tried with v2.4.2, thinking that maybe 2.5.0 has some new bug but I got the same error message. If I try installing again it complains that the v2.5.0 folder already exists, but I can not select it in the list of available SDKs.

I'm currently using v2.1.0 for my projects which works fine except I always get warnings about IntelliSense not working. (It may be related or perhaps it should be a separate question.)