diff --git a/package.json b/package.json
index 71f7465f66..e13dc632ff 100644
--- a/package.json
+++ b/package.json
@@ -1,7 +1,7 @@
 {
   "name": "azuredatastudio",
   "version": "1.28.0",
-  "distro": "0de18a407aaa6294c15918753b6032c7bb919aaf",
+  "distro": "1d8bd1032738ec5b6aad0b80551eee7376a617dc",
   "author": {
     "name": "Microsoft Corporation"
   },
diff --git a/src/vs/platform/remote/common/remoteAgentEnvironment.ts b/src/vs/platform/remote/common/remoteAgentEnvironment.ts
index ea8ff9f04f..98b5aa3a07 100644
--- a/src/vs/platform/remote/common/remoteAgentEnvironment.ts
+++ b/src/vs/platform/remote/common/remoteAgentEnvironment.ts
@@ -18,6 +18,7 @@ export interface IRemoteAgentEnvironment {
 	workspaceStorageHome: URI;
 	userHome: URI;
 	os: OperatingSystem;
+	useHostProxy: boolean;
 }
 
 export interface RemoteAgentConnectionContext {
diff --git a/src/vs/platform/request/common/request.ts b/src/vs/platform/request/common/request.ts
index 49b939865f..397e30062a 100644
--- a/src/vs/platform/request/common/request.ts
+++ b/src/vs/platform/request/common/request.ts
@@ -6,7 +6,7 @@
 import { localize } from 'vs/nls';
 import { CancellationToken } from 'vs/base/common/cancellation';
 import { createDecorator } from 'vs/platform/instantiation/common/instantiation';
-import { IConfigurationRegistry, Extensions } from 'vs/platform/configuration/common/configurationRegistry';
+import { IConfigurationRegistry, Extensions, ConfigurationScope, IConfigurationNode } from 'vs/platform/configuration/common/configurationRegistry';
 import { Registry } from 'vs/platform/registry/common/platform';
 import { streamToBuffer } from 'vs/base/common/buffer';
 import { IRequestOptions, IRequestContext } from 'vs/base/parts/request/common/request';
@@ -66,12 +66,22 @@ export interface IHTTPConfiguration {
 	};
 }
 
-Registry.as<IConfigurationRegistry>(Extensions.Configuration)
-	.registerConfiguration({
+export function updateProxyConfigurationsScope(scope: ConfigurationScope): void {
+	registerProxyConfigurations(scope);
+}
+
+let proxyConfiguration: IConfigurationNode | undefined;
+function registerProxyConfigurations(scope: ConfigurationScope): void {
+	const configurationRegistry = Registry.as<IConfigurationRegistry>(Extensions.Configuration);
+	if (proxyConfiguration) {
+		configurationRegistry.deregisterConfigurations([proxyConfiguration]);
+	}
+	proxyConfiguration = {
 		id: 'http',
 		order: 15,
 		title: localize('httpConfigurationTitle', "HTTP"),
 		type: 'object',
+		scope,
 		properties: {
 			'http.proxy': {
 				type: 'string',
@@ -105,4 +115,8 @@ Registry.as<IConfigurationRegistry>(Extensions.Configuration)
 				description: localize('systemCertificates', "Controls whether CA certificates should be loaded from the OS. (On Windows and macOS a reload of the window is required after turning this off.)")
 			}
 		}
-	});
+	};
+	configurationRegistry.registerConfiguration(proxyConfiguration);
+}
+
+registerProxyConfigurations(ConfigurationScope.MACHINE);
diff --git a/src/vs/workbench/services/extensions/electron-browser/extensionService.ts b/src/vs/workbench/services/extensions/electron-browser/extensionService.ts
index dc2ad3e2ba..facb51c6b8 100644
--- a/src/vs/workbench/services/extensions/electron-browser/extensionService.ts
+++ b/src/vs/workbench/services/extensions/electron-browser/extensionService.ts
@@ -40,6 +40,8 @@ import { ILogService } from 'vs/platform/log/common/log';
 import { CATEGORIES } from 'vs/workbench/common/actions';
 import { Schemas } from 'vs/base/common/network';
 import { ExtensionHostExitCode } from 'vs/workbench/services/extensions/common/extensionHostProtocol';
+import { updateProxyConfigurationsScope } from 'vs/platform/request/common/request';
+import { ConfigurationScope } from 'vs/platform/configuration/common/configurationRegistry';
 
 export class ExtensionService extends AbstractExtensionService implements IExtensionService {
 
@@ -336,6 +338,8 @@ export class ExtensionService extends AbstractExtensionService implements IExten
 				await this._startLocalExtensionHost(localExtensions);
 				return;
 			}
+
+			updateProxyConfigurationsScope(remoteEnv.useHostProxy ? ConfigurationScope.APPLICATION : ConfigurationScope.MACHINE);
 		}
 
 		await this._startLocalExtensionHost(localExtensions, remoteAuthority, remoteEnv, remoteExtensions);
diff --git a/src/vs/workbench/services/remote/common/remoteAgentEnvironmentChannel.ts b/src/vs/workbench/services/remote/common/remoteAgentEnvironmentChannel.ts
index 3aeb1fefc8..e838e6466c 100644
--- a/src/vs/workbench/services/remote/common/remoteAgentEnvironmentChannel.ts
+++ b/src/vs/workbench/services/remote/common/remoteAgentEnvironmentChannel.ts
@@ -41,6 +41,7 @@ export interface IRemoteAgentEnvironmentDTO {
 	workspaceStorageHome: UriComponents;
 	userHome: UriComponents;
 	os: platform.OperatingSystem;
+	useHostProxy: boolean;
 }
 
 export class RemoteExtensionEnvironmentChannelClient {
@@ -63,7 +64,8 @@ export class RemoteExtensionEnvironmentChannelClient {
 			globalStorageHome: URI.revive(data.globalStorageHome),
 			workspaceStorageHome: URI.revive(data.workspaceStorageHome),
 			userHome: URI.revive(data.userHome),
-			os: data.os
+			os: data.os,
+			useHostProxy: data.useHostProxy
 		};
 	}