Trouble building with VSCode extension

I started using nRF Connect for VSCode a couple of days ago on one computer and it has been working great. Now I had to switch to a new computer where I had also just briefly tested the extension with sdk version 1.6.1. I updated the settings for sdk and toolchain to  v1.7.0. I was able to build the project, but I wasn't able to see my device in VS Code.

I tried reinstalling the command line tools and tried adding the path to environment variables. This didn't help so I tried updating the toolchain in Toolchain Manager and open VS Code from there. 
Toolchain manager checked and installed required extensions and I was also prompted to disable some conflicting extensions when VS Code was opened. Neat! 

But now I am not even able to build anymore. I tried first with my application and then with one of your sample applications from v1.7.0.

I get this output when trying to add a build configuration:

Building lte_ble_gateway
west build --build-dir c:\v1.7.0\nrf\samples\nrf9160\lte_ble_gateway\build c:\v1.7.0\nrf\samples\nrf9160\lte_ble_gateway --pristine --board nrf9160dk_nrf9160_ns -- -DCMAKE_EXPORT_COMPILE_COMMANDS:BOOL=On -DNCS_TOOLCHAIN_VERSION:STRING="NONE" -DCONFIG_DEBUG_OPTIMIZATIONS=y -DCONFIG_OPENOCD_SUPPORT=y -DOVERLAY_CONFIG:STRING="debug.config.conf"

usage: west [-h] [-z ZEPHYR_BASE] [-v] [-V] <command> ...
west: error: argument <command>: invalid choice: 'build' (choose from 'init', 'update', 'list', 'manifest', 'diff', 'status', 'forall', 'help', 'config', 'topdir', 'selfupdate')
The terminal process terminated with exit code: 2.

If I run west --help I see the "build" option in the list:

$ west --help
usage: west [-h] [-z ZEPHYR_BASE] [-v] [-V] <command> ...

The Zephyr RTOS meta-tool.

optional arguments:
  -h, --help            get help for west or a command
  -z ZEPHYR_BASE, --zephyr-base ZEPHYR_BASE
                        Override the Zephyr base directory. The default is
                        the manifest project with path "zephyr".
  -v, --verbose         Display verbose output. May be given multiple times
                        to increase verbosity.
  -V, --version         print the program version and exit

built-in commands for managing git repositories:
  init:                 create a west workspace
  update:               update projects described in west manifest
  list:                 print information about projects
  manifest:             manage the west manifest
  diff:                 "git diff" for one or more projects
  status:               "git status" for one or more projects
  forall:               run a command in one or more local projects

other built-in commands:
  help:                 get help for west or a command
  config:               get or set config file values
  topdir:               print the top level directory of the workspace

extension commands from project manifest (path: nrf):
  ncs-loot:             list out of tree unreverted NCS patches
  ncs-compare:          compare upstream manifest with NCS

extension commands from project zephyr (path: zephyr):
  completion:           display shell completion scripts
  boards:               display information about supported boards
  build:                compile a Zephyr application
  sign:                 sign a Zephyr binary for bootloader chain-loading
  flash:                flash and run a binary on a board
  debug:                flash and interactively debug a Zephyr application
  debugserver:          connect to board and launch a debug server
  attach:               interactively debug a board
  zephyr-export:        export Zephyr installation as a CMake config
                        package
  spdx:                 create SPDX bill of materials

Run "west help <command>" for help on each <command>.

I tried building manually with west in the bash terminal and then it tries to use the old version v1.6.1:

$ west build -b nrf9160dk_nrf9160_ns -d build
-- west build: generating a build system
Including boilerplate (Zephyr base): C:/v1.6.1/zephyr/cmake/app/boilerplate.cmake

Is this the same commands used when I try to add a build configuration with the nrf extension? If so, how can I change it to also use 1.7.0?

If that's not the issue, what could be?

Some relevant entries in settings.json:

{
    "kconfig.zephyr.west": "C:\\v1.7.0\\toolchain\\opt\\bin\\Scripts\\west.exe",
    "devicetree.zephyr": "C:\\v1.7.0\\zephyr\\",
    "nrf-connect.topdir": "c:\\v1.7.0",
        "nrf-connect.toolchain.path": "c:\\v1.7.0\\toolchain",
        "nrf-connect.west.env": {
            "$base": "terminal"
        }
}

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