diff --git a/packages/coding-agent/src/modes/interactive/components/diff.ts b/packages/coding-agent/src/modes/interactive/components/diff.ts
new file mode 100644
index 00000000..d575d63e
--- /dev/null
+++ b/packages/coding-agent/src/modes/interactive/components/diff.ts
@@ -0,0 +1,147 @@
+import * as Diff from "diff";
+import { theme } from "../theme/theme.js";
+
+/**
+ * Parse diff line to extract prefix, line number, and content.
+ * Format: "+123 content" or "-123 content" or " 123 content" or "     ..."
+ */
+function parseDiffLine(line: string): { prefix: string; lineNum: string; content: string } | null {
+	const match = line.match(/^([+-\s])(\s*\d*)\s(.*)$/);
+	if (!match) return null;
+	return { prefix: match[1], lineNum: match[2], content: match[3] };
+}
+
+/**
+ * Replace tabs with spaces for consistent rendering.
+ */
+function replaceTabs(text: string): string {
+	return text.replace(/\t/g, "   ");
+}
+
+/**
+ * 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.
+ */
+function renderIntraLineDiff(oldContent: string, newContent: string): { removedLine: string; addedLine: string } {
+	const wordDiff = Diff.diffWords(oldContent, newContent);
+
+	let removedLine = "";
+	let addedLine = "";
+	let isFirstRemoved = true;
+	let isFirstAdded = true;
+
+	for (const part of wordDiff) {
+		if (part.removed) {
+			let value = part.value;
+			// Strip leading whitespace from the first removed part
+			if (isFirstRemoved) {
+				const leadingWs = value.match(/^(\s*)/)?.[1] || "";
+				value = value.slice(leadingWs.length);
+				removedLine += leadingWs;
+				isFirstRemoved = false;
+			}
+			if (value) {
+				removedLine += theme.inverse(value);
+			}
+		} else if (part.added) {
+			let value = part.value;
+			// Strip leading whitespace from the first added part
+			if (isFirstAdded) {
+				const leadingWs = value.match(/^(\s*)/)?.[1] || "";
+				value = value.slice(leadingWs.length);
+				addedLine += leadingWs;
+				isFirstAdded = false;
+			}
+			if (value) {
+				addedLine += theme.inverse(value);
+			}
+		} else {
+			removedLine += part.value;
+			addedLine += part.value;
+		}
+	}
+
+	return { removedLine, addedLine };
+}
+
+export interface RenderDiffOptions {
+	/** File path (unused, kept for API compatibility) */
+	filePath?: string;
+}
+
+/**
+ * Render a diff string with colored lines and intra-line change highlighting.
+ * - Context lines: dim/gray
+ * - Removed lines: red, with inverse on changed tokens
+ * - Added lines: green, with inverse on changed tokens
+ */
+export function renderDiff(diffText: string, _options: RenderDiffOptions = {}): string {
+	const lines = diffText.split("\n");
+	const result: string[] = [];
+
+	let i = 0;
+	while (i < lines.length) {
+		const line = lines[i];
+		const parsed = parseDiffLine(line);
+
+		if (!parsed) {
+			result.push(theme.fg("toolDiffContext", line));
+			i++;
+			continue;
+		}
+
+		if (parsed.prefix === "-") {
+			// Collect consecutive removed lines
+			const removedLines: { lineNum: string; content: string }[] = [];
+			while (i < lines.length) {
+				const p = parseDiffLine(lines[i]);
+				if (!p || p.prefix !== "-") break;
+				removedLines.push({ lineNum: p.lineNum, content: p.content });
+				i++;
+			}
+
+			// Collect consecutive added lines
+			const addedLines: { lineNum: string; content: string }[] = [];
+			while (i < lines.length) {
+				const p = parseDiffLine(lines[i]);
+				if (!p || p.prefix !== "+") break;
+				addedLines.push({ lineNum: p.lineNum, content: p.content });
+				i++;
+			}
+
+			// Only do intra-line diffing when there's exactly one removed and one added line
+			// (indicating a single line modification). Otherwise, show lines as-is.
+			if (removedLines.length === 1 && addedLines.length === 1) {
+				const removed = removedLines[0];
+				const added = addedLines[0];
+
+				const { removedLine, addedLine } = renderIntraLineDiff(
+					replaceTabs(removed.content),
+					replaceTabs(added.content),
+				);
+
+				result.push(theme.fg("toolDiffRemoved", `-${removed.lineNum} ${removedLine}`));
+				result.push(theme.fg("toolDiffAdded", `+${added.lineNum} ${addedLine}`));
+			} else {
+				// Show all removed lines first, then all added lines
+				for (const removed of removedLines) {
+					result.push(theme.fg("toolDiffRemoved", `-${removed.lineNum} ${replaceTabs(removed.content)}`));
+				}
+				for (const added of addedLines) {
+					result.push(theme.fg("toolDiffAdded", `+${added.lineNum} ${replaceTabs(added.content)}`));
+				}
+			}
+		} else if (parsed.prefix === "+") {
+			// Standalone added line
+			result.push(theme.fg("toolDiffAdded", `+${parsed.lineNum} ${replaceTabs(parsed.content)}`));
+			i++;
+		} else {
+			// Context line
+			result.push(theme.fg("toolDiffContext", ` ${parsed.lineNum} ${replaceTabs(parsed.content)}`));
+			i++;
+		}
+	}
+
+	return result.join("\n");
+}
diff --git a/packages/coding-agent/src/modes/interactive/components/tool-execution.ts b/packages/coding-agent/src/modes/interactive/components/tool-execution.ts
index 61e0113d..98dec495 100644
--- a/packages/coding-agent/src/modes/interactive/components/tool-execution.ts
+++ b/packages/coding-agent/src/modes/interactive/components/tool-execution.ts
@@ -13,6 +13,7 @@ import stripAnsi from "strip-ansi";
 import type { CustomAgentTool } from "../../../core/custom-tools/types.js";
 import { DEFAULT_MAX_BYTES, DEFAULT_MAX_LINES, formatSize } from "../../../core/tools/truncate.js";
 import { getLanguageFromPath, highlightCode, theme } from "../theme/theme.js";
+import { renderDiff } from "./diff.js";
 
 /**
  * Convert absolute path to tilde notation if it's in home directory
@@ -358,7 +359,8 @@ export class ToolExecutionComponent extends Container {
 				}
 			}
 		} else if (this.toolName === "edit") {
-			const path = shortenPath(this.args?.file_path || this.args?.path || "");
+			const rawPath = this.args?.file_path || this.args?.path || "";
+			const path = shortenPath(rawPath);
 			text =
 				theme.fg("toolTitle", theme.bold("edit")) +
 				" " +
@@ -371,17 +373,7 @@ export class ToolExecutionComponent extends Container {
 						text += "\n\n" + theme.fg("error", errorText);
 					}
 				} else if (this.result.details?.diff) {
-					const diffLines = this.result.details.diff.split("\n");
-					const coloredLines = diffLines.map((line: string) => {
-						if (line.startsWith("+")) {
-							return theme.fg("toolDiffAdded", line);
-						} else if (line.startsWith("-")) {
-							return theme.fg("toolDiffRemoved", line);
-						} else {
-							return theme.fg("toolDiffContext", line);
-						}
-					});
-					text += "\n\n" + coloredLines.join("\n");
+					text += "\n\n" + renderDiff(this.result.details.diff, { filePath: rawPath });
 				}
 			}
 		} else if (this.toolName === "ls") {
diff --git a/packages/coding-agent/src/modes/interactive/theme/theme.ts b/packages/coding-agent/src/modes/interactive/theme/theme.ts
index f02018a1..885f2c01 100644
--- a/packages/coding-agent/src/modes/interactive/theme/theme.ts
+++ b/packages/coding-agent/src/modes/interactive/theme/theme.ts
@@ -351,6 +351,10 @@ export class Theme {
 		return chalk.underline(text);
 	}
 
+	inverse(text: string): string {
+		return chalk.inverse(text);
+	}
+
 	getFgAnsi(color: ThemeColor): string {
 		const ansi = this.fgColors.get(color);
 		if (!ansi) throw new Error(`Unknown theme color: ${color}`);