diff --git a/src/vs/workbench/services/textfile/browser/textFileService.ts b/src/vs/workbench/services/textfile/browser/textFileService.ts
index ba53fb83171..d54a646484a 100644
--- a/src/vs/workbench/services/textfile/browser/textFileService.ts
+++ b/src/vs/workbench/services/textfile/browser/textFileService.ts
@@ -10,6 +10,7 @@ import { IRevertOptions, SaveSourceRegistry } from 'vs/workbench/common/editor';
 import { ILifecycleService } from 'vs/workbench/services/lifecycle/common/lifecycle';
 import { IFileService, FileOperationError, FileOperationResult, IFileStatWithMetadata, ICreateFileOptions, IFileStreamContent } from 'vs/platform/files/common/files';
 import { Disposable } from 'vs/base/common/lifecycle';
+import { extname as pathExtname } from 'vs/base/common/path';
 import { IWorkbenchEnvironmentService } from 'vs/workbench/services/environment/common/environmentService';
 import { IUntitledTextEditorService, IUntitledTextEditorModelManager } from 'vs/workbench/services/untitled/common/untitledTextEditorService';
 import { UntitledTextEditorModel } from 'vs/workbench/services/untitled/common/untitledTextEditorModel';
@@ -43,6 +44,7 @@ import { Emitter } from 'vs/base/common/event';
 import { Codicon } from 'vs/base/common/codicons';
 import { listErrorForeground } from 'vs/platform/theme/common/colorRegistry';
 import { withNullAsUndefined } from 'vs/base/common/types';
+import { firstOrDefault } from 'vs/base/common/arrays';
 
 /**
  * The workbench file service implementation implements the raw file service spec and adds additional methods on top.
@@ -576,19 +578,16 @@ export abstract class AbstractTextFileService extends Disposable implements ITex
 				}
 
 				// Untitled without associated file path: use name
-				// of untitled model if it is a valid path name,
-				// otherwise fallback to `basename`.
-				let untitledName = model.name;
-				if (!(await this.pathService.hasValidBasename(joinPath(defaultFilePath, untitledName), untitledName))) {
-					untitledName = basename(resource);
-				}
+				// of untitled model if it is a valid path name and
+				// figure out the file extension from the mode if any.
 
-				// Add language file extension if specified
-				const languageId = model.getLanguageId();
-				if (languageId && languageId !== PLAINTEXT_LANGUAGE_ID) {
-					suggestedFilename = this.suggestFilename(languageId, untitledName);
-				} else {
-					suggestedFilename = untitledName;
+				if (await this.pathService.hasValidBasename(joinPath(defaultFilePath, model.name), model.name)) {
+					const languageId = model.getLanguageId();
+					if (languageId && languageId !== PLAINTEXT_LANGUAGE_ID) {
+						suggestedFilename = this.suggestFilename(languageId, model.name);
+					} else {
+						suggestedFilename = model.name;
+					}
 				}
 			}
 		}
@@ -606,18 +605,31 @@ export abstract class AbstractTextFileService extends Disposable implements ITex
 	suggestFilename(languageId: string, untitledName: string) {
 		const languageName = this.languageService.getLanguageName(languageId);
 		if (!languageName) {
-			return untitledName;
+			return untitledName; // unknown language, so we cannot suggest a better name
 		}
 
-		const extension = this.languageService.getExtensions(languageId)[0];
-		if (extension) {
-			if (!untitledName.endsWith(extension)) {
-				return untitledName + extension;
+		const untitledExtension = pathExtname(untitledName);
+
+		const extensions = this.languageService.getExtensions(languageId);
+		if (extensions.includes(untitledExtension)) {
+			return untitledName; // preserve extension if it is compatible with the mode
+		}
+
+		const primaryExtension = firstOrDefault(extensions);
+		if (primaryExtension) {
+			if (untitledExtension) {
+				return `${untitledName.substring(0, untitledName.indexOf(untitledExtension))}${primaryExtension}`;
 			}
+
+			return `${untitledName}${primaryExtension}`;
 		}
 
-		const filename = this.languageService.getFilenames(languageId)[0];
-		return filename || untitledName;
+		const filenames = this.languageService.getFilenames(languageId);
+		if (filenames.includes(untitledName)) {
+			return untitledName; // preserve name if it is compatible with the mode
+		}
+
+		return firstOrDefault(filenames) ?? untitledName;
 	}
 
 	//#endregion
diff --git a/src/vs/workbench/services/textfile/test/browser/textFileService.test.ts b/src/vs/workbench/services/textfile/test/browser/textFileService.test.ts
index ad1be2b0dad..45bd9ba71fd 100644
--- a/src/vs/workbench/services/textfile/test/browser/textFileService.test.ts
+++ b/src/vs/workbench/services/textfile/test/browser/textFileService.test.ts
@@ -160,6 +160,28 @@ suite('Files - TextFileService', () => {
 		registration.dispose();
 	});
 
+	test('Filename Suggestion - Preserve extension if it matchers', () => {
+		const registration = accessor.languageService.registerLanguage({
+			id: 'plumbus2',
+			extensions: ['.shleem', '.gazorpazorp'],
+		});
+
+		const suggested = accessor.textFileService.suggestFilename('plumbus2', 'Untitled-1.gazorpazorp');
+		assert.strictEqual(suggested, 'Untitled-1.gazorpazorp');
+		registration.dispose();
+	});
+
+	test('Filename Suggestion - Rewrite extension according to language', () => {
+		const registration = accessor.languageService.registerLanguage({
+			id: 'plumbus2',
+			extensions: ['.shleem', '.gazorpazorp'],
+		});
+
+		const suggested = accessor.textFileService.suggestFilename('plumbus2', 'Untitled-1.foobar');
+		assert.strictEqual(suggested, 'Untitled-1.shleem');
+		registration.dispose();
+	});
+
 	test('Filename Suggestion - Suggest filename if there are no extensions', () => {
 		const registration = accessor.languageService.registerLanguage({
 			id: 'plumbus2',
@@ -170,4 +192,26 @@ suite('Files - TextFileService', () => {
 		assert.strictEqual(suggested, 'plumbus');
 		registration.dispose();
 	});
+
+	test('Filename Suggestion - Preserve filename if it matches', () => {
+		const registration = accessor.languageService.registerLanguage({
+			id: 'plumbus2',
+			filenames: ['plumbus', 'shleem', 'gazorpazorp']
+		});
+
+		const suggested = accessor.textFileService.suggestFilename('plumbus2', 'gazorpazorp');
+		assert.strictEqual(suggested, 'gazorpazorp');
+		registration.dispose();
+	});
+
+	test('Filename Suggestion - Rewrites filename according to language', () => {
+		const registration = accessor.languageService.registerLanguage({
+			id: 'plumbus2',
+			filenames: ['plumbus', 'shleem', 'gazorpazorp']
+		});
+
+		const suggested = accessor.textFileService.suggestFilename('plumbus2', 'foobar');
+		assert.strictEqual(suggested, 'plumbus');
+		registration.dispose();
+	});
 });