diff --git a/package.json b/package.json
index b6a4b65b42a9..ef1e11981638 100644
--- a/package.json
+++ b/package.json
@@ -46,7 +46,7 @@
         "theme": "dark"
     },
     "engines": {
-        "vscode": "^1.79.0-20230526"
+        "vscode": "^1.81"
     },
     "enableTelemetry": false,
     "keywords": [
diff --git a/src/client/interpreter/activation/terminalEnvVarCollectionService.ts b/src/client/interpreter/activation/terminalEnvVarCollectionService.ts
index 957eac71d1f5..9ca10e0991ca 100644
--- a/src/client/interpreter/activation/terminalEnvVarCollectionService.ts
+++ b/src/client/interpreter/activation/terminalEnvVarCollectionService.ts
@@ -164,13 +164,13 @@ export class TerminalEnvVarCollectionService implements IExtensionActivationServ
             }
         }
 
-        for (const key in previousEnv) {
-            // If the previous env var is not in the current env, clear it from collection.
+        envVarCollection.forEach((key) => {
+            // If a previously set env var is not in the current env, clear it from collection.
             if (!(key in env)) {
                 traceVerbose(`Clearing environment variable ${key} from collection`);
                 envVarCollection.delete(key);
             }
-        }
+        });
 
         const displayPath = this.pathUtils.getDisplayName(settings.pythonPath, workspaceFolder?.uri.fsPath);
         const description = new MarkdownString(`${Interpreters.activateTerminalDescription} \`${displayPath}\``);