diff --git a/src/vs/editor/common/diff/defaultLinesDiffComputer/heuristicSequenceOptimizations.ts b/src/vs/editor/common/diff/defaultLinesDiffComputer/heuristicSequenceOptimizations.ts
index 08efd578136..fddfb1e0c61 100644
--- a/src/vs/editor/common/diff/defaultLinesDiffComputer/heuristicSequenceOptimizations.ts
+++ b/src/vs/editor/common/diff/defaultLinesDiffComputer/heuristicSequenceOptimizations.ts
@@ -247,7 +247,7 @@ export function extendDiffsToEntireWordIfAppropriate(sequence1: LinesSliceCharSe
 
 		while (equalMappings.length > 0) {
 			const next = equalMappings[0];
-			const intersects = next.seq1Range.intersects(w1) || next.seq2Range.intersects(w2);
+			const intersects = next.seq1Range.intersects(w.seq1Range) || next.seq2Range.intersects(w.seq2Range);
 			if (!intersects) {
 				break;
 			}
diff --git a/src/vs/editor/test/node/diffing/fixtures/issue-204948/1.txt b/src/vs/editor/test/node/diffing/fixtures/issue-204948/1.txt
new file mode 100644
index 00000000000..42f5b92add2
--- /dev/null
+++ b/src/vs/editor/test/node/diffing/fixtures/issue-204948/1.txt
@@ -0,0 +1,9 @@
+    "@babel/types" "^7.22.15"
+
+"@babel/traverse@^7.23.9":
+  version "7.23.9"
+  resolved "https://registry.yarnpkg.com/@babel/traverse/-/traverse-7.23.7.tgz#9a7bf285c928cb99b5ead19c3b1ce5b310c9c305"
+  integrity sha512-tY3mM8rH9jM0YHFGyfC0/xf+SB5eKUu7HPj7/k3fpi9dAlsMc5YbQvDi0Sh2QTPXqMhyaAtzAr807TIyfQrmyg==
+  dependencies:
+    "@babel/code-frame" "^7.23.5"
+    "@babel/generator" "^7.23.6"
\ No newline at end of file
diff --git a/src/vs/editor/test/node/diffing/fixtures/issue-204948/2.txt b/src/vs/editor/test/node/diffing/fixtures/issue-204948/2.txt
new file mode 100644
index 00000000000..2b5867f0165
--- /dev/null
+++ b/src/vs/editor/test/node/diffing/fixtures/issue-204948/2.txt
@@ -0,0 +1,9 @@
+    "@babel/types" "^7.22.15"
+
+"@babel/traverse@^7.23.9":
+  version "7.23.9"
+  resolved "https://registry.yarnpkg.com/@babel/traverse/-/traverse-7.23.7.tgz#9a7bf285c928cb99b5ead19c3b1ce5b310c9c305"
+  integrity sha512-I/4UJ9vs90OkBtY6iiiTORVMyIhJ4kAVmsKo9KFc8UOxMeUfi2hvtIBsET5u9GizXE6/GFSuKCTNfgCswuEjRg==
+  dependencies:
+    "@babel/code-frame" "^7.23.5"
+    "@babel/generator" "^7.23.6"
\ No newline at end of file
diff --git a/src/vs/editor/test/node/diffing/fixtures/issue-204948/advanced.expected.diff.json b/src/vs/editor/test/node/diffing/fixtures/issue-204948/advanced.expected.diff.json
new file mode 100644
index 00000000000..4dd454f4a45
--- /dev/null
+++ b/src/vs/editor/test/node/diffing/fixtures/issue-204948/advanced.expected.diff.json
@@ -0,0 +1,22 @@
+{
+	"original": {
+		"content": "    \"@babel/types\" \"^7.22.15\"\n\n\"@babel/traverse@^7.23.9\":\n  version \"7.23.9\"\n  resolved \"https://registry.yarnpkg.com/@babel/traverse/-/traverse-7.23.7.tgz#9a7bf285c928cb99b5ead19c3b1ce5b310c9c305\"\n  integrity sha512-tY3mM8rH9jM0YHFGyfC0/xf+SB5eKUu7HPj7/k3fpi9dAlsMc5YbQvDi0Sh2QTPXqMhyaAtzAr807TIyfQrmyg==\n  dependencies:\n    \"@babel/code-frame\" \"^7.23.5\"\n    \"@babel/generator\" \"^7.23.6\"",
+		"fileName": "./1.txt"
+	},
+	"modified": {
+		"content": "    \"@babel/types\" \"^7.22.15\"\n\n\"@babel/traverse@^7.23.9\":\n  version \"7.23.9\"\n  resolved \"https://registry.yarnpkg.com/@babel/traverse/-/traverse-7.23.7.tgz#9a7bf285c928cb99b5ead19c3b1ce5b310c9c305\"\n  integrity sha512-I/4UJ9vs90OkBtY6iiiTORVMyIhJ4kAVmsKo9KFc8UOxMeUfi2hvtIBsET5u9GizXE6/GFSuKCTNfgCswuEjRg==\n  dependencies:\n    \"@babel/code-frame\" \"^7.23.5\"\n    \"@babel/generator\" \"^7.23.6\"",
+		"fileName": "./2.txt"
+	},
+	"diffs": [
+		{
+			"originalRange": "[6,7)",
+			"modifiedRange": "[6,7)",
+			"innerChanges": [
+				{
+					"originalRange": "[6,20 -> 7,1]",
+					"modifiedRange": "[6,20 -> 7,1]"
+				}
+			]
+		}
+	]
+}
\ No newline at end of file
diff --git a/src/vs/editor/test/node/diffing/fixtures/issue-204948/legacy.expected.diff.json b/src/vs/editor/test/node/diffing/fixtures/issue-204948/legacy.expected.diff.json
new file mode 100644
index 00000000000..97e5b8d4e12
--- /dev/null
+++ b/src/vs/editor/test/node/diffing/fixtures/issue-204948/legacy.expected.diff.json
@@ -0,0 +1,22 @@
+{
+	"original": {
+		"content": "    \"@babel/types\" \"^7.22.15\"\n\n\"@babel/traverse@^7.23.9\":\n  version \"7.23.9\"\n  resolved \"https://registry.yarnpkg.com/@babel/traverse/-/traverse-7.23.7.tgz#9a7bf285c928cb99b5ead19c3b1ce5b310c9c305\"\n  integrity sha512-tY3mM8rH9jM0YHFGyfC0/xf+SB5eKUu7HPj7/k3fpi9dAlsMc5YbQvDi0Sh2QTPXqMhyaAtzAr807TIyfQrmyg==\n  dependencies:\n    \"@babel/code-frame\" \"^7.23.5\"\n    \"@babel/generator\" \"^7.23.6\"",
+		"fileName": "./1.txt"
+	},
+	"modified": {
+		"content": "    \"@babel/types\" \"^7.22.15\"\n\n\"@babel/traverse@^7.23.9\":\n  version \"7.23.9\"\n  resolved \"https://registry.yarnpkg.com/@babel/traverse/-/traverse-7.23.7.tgz#9a7bf285c928cb99b5ead19c3b1ce5b310c9c305\"\n  integrity sha512-I/4UJ9vs90OkBtY6iiiTORVMyIhJ4kAVmsKo9KFc8UOxMeUfi2hvtIBsET5u9GizXE6/GFSuKCTNfgCswuEjRg==\n  dependencies:\n    \"@babel/code-frame\" \"^7.23.5\"\n    \"@babel/generator\" \"^7.23.6\"",
+		"fileName": "./2.txt"
+	},
+	"diffs": [
+		{
+			"originalRange": "[6,7)",
+			"modifiedRange": "[6,7)",
+			"innerChanges": [
+				{
+					"originalRange": "[6,20 -> 6,105]",
+					"modifiedRange": "[6,20 -> 6,105]"
+				}
+			]
+		}
+	]
+}
\ No newline at end of file