diff --git a/packages/core/src/utils/paths.test.ts b/packages/core/src/utils/paths.test.ts
index 602f977a0c..210dc8b448 100644
--- a/packages/core/src/utils/paths.test.ts
+++ b/packages/core/src/utils/paths.test.ts
@@ -5,7 +5,7 @@
  */
 
 import { describe, it, expect, beforeAll, afterAll } from 'vitest';
-import { escapePath, unescapePath, isSubpath } from './paths.js';
+import { escapePath, unescapePath, isSubpath, shortenPath } from './paths.js';
 
 describe('escapePath', () => {
   it.each([
@@ -257,3 +257,218 @@ describe('isSubpath on Windows', () => {
     expect(isSubpath('Users\\Test\\file.txt', 'Users\\Test')).toBe(false);
   });
 });
+
+describe('shortenPath', () => {
+  describe.skipIf(process.platform === 'win32')('on POSIX', () => {
+    it('should not shorten a path that is shorter than maxLen', () => {
+      const p = '/path/to/file.txt';
+      expect(shortenPath(p, 40)).toBe(p);
+    });
+
+    it('should not shorten a path that is equal to maxLen', () => {
+      const p = '/path/to/file.txt';
+      expect(shortenPath(p, p.length)).toBe(p);
+    });
+
+    it('should shorten a long path, keeping start and end from a short limit', () => {
+      const p = '/path/to/a/very/long/directory/name/file.txt';
+      expect(shortenPath(p, 25)).toBe('/path/.../name/file.txt');
+    });
+
+    it('should shorten a long path, keeping more from the end from a longer limit', () => {
+      const p = '/path/to/a/very/long/directory/name/file.txt';
+      expect(shortenPath(p, 35)).toBe('/path/.../directory/name/file.txt');
+    });
+
+    it('should handle deep paths where few segments from the end fit', () => {
+      const p = '/a/b/c/d/e/f/g/h/i/j/k/l/m/n/o/p/q/r/s/t/u/v/w/x/y/z/file.txt';
+      expect(shortenPath(p, 20)).toBe('/a/.../y/z/file.txt');
+    });
+
+    it('should handle deep paths where many segments from the end fit', () => {
+      const p = '/a/b/c/d/e/f/g/h/i/j/k/l/m/n/o/p/q/r/s/t/u/v/w/x/y/z/file.txt';
+      expect(shortenPath(p, 45)).toBe(
+        '/a/.../l/m/n/o/p/q/r/s/t/u/v/w/x/y/z/file.txt',
+      );
+    });
+
+    it('should handle a long filename in the root when it needs shortening', () => {
+      const p = '/a-very-long-filename-that-needs-to-be-shortened.txt';
+      expect(shortenPath(p, 40)).toBe(
+        '/a-very-long-filen...o-be-shortened.txt',
+      );
+    });
+
+    it('should handle root path', () => {
+      const p = '/';
+      expect(shortenPath(p, 10)).toBe('/');
+    });
+
+    it('should handle a path with one long segment after root', () => {
+      const p = '/a-very-long-directory-name';
+      expect(shortenPath(p, 20)).toBe('/a-very-...ory-name');
+    });
+
+    it('should handle a path with just a long filename (no root)', () => {
+      const p = 'a-very-long-filename-that-needs-to-be-shortened.txt';
+      expect(shortenPath(p, 40)).toBe(
+        'a-very-long-filena...o-be-shortened.txt',
+      );
+    });
+
+    it('should fallback to truncating earlier segments while keeping the last intact', () => {
+      const p = '/abcdef/fghij.txt';
+      const result = shortenPath(p, 10);
+      expect(result).toBe('/fghij.txt');
+      expect(result.length).toBeLessThanOrEqual(10);
+    });
+
+    it('should fallback by truncating start and middle segments when needed', () => {
+      const p = '/averylongcomponentname/another/short.txt';
+      const result = shortenPath(p, 25);
+      expect(result).toBe('/averylo.../.../short.txt');
+      expect(result.length).toBeLessThanOrEqual(25);
+    });
+
+    it('should show only the last segment when maxLen is tiny', () => {
+      const p = '/foo/bar/baz.txt';
+      const result = shortenPath(p, 8);
+      expect(result).toBe('/baz.txt');
+      expect(result.length).toBeLessThanOrEqual(8);
+    });
+
+    it('should fall back to simple truncation when the last segment exceeds maxLen', () => {
+      const longFile = 'x'.repeat(60) + '.txt';
+      const p = `/really/long/${longFile}`;
+      const result = shortenPath(p, 50);
+      expect(result).toBe('/really/long/xxxxxxxxxx...xxxxxxxxxxxxxxxxxxx.txt');
+      expect(result.length).toBeLessThanOrEqual(50);
+    });
+
+    it('should handle relative paths without a root', () => {
+      const p = 'foo/bar/baz/qux.txt';
+      const result = shortenPath(p, 18);
+      expect(result).toBe('foo/.../qux.txt');
+      expect(result.length).toBeLessThanOrEqual(18);
+    });
+
+    it('should ignore empty segments created by repeated separators', () => {
+      const p = '/foo//bar///baz/verylongname.txt';
+      const result = shortenPath(p, 20);
+      expect(result).toBe('.../verylongname.txt');
+      expect(result.length).toBeLessThanOrEqual(20);
+    });
+  });
+
+  describe.skipIf(process.platform !== 'win32')('on Windows', () => {
+    it('should not shorten a path that is shorter than maxLen', () => {
+      const p = 'C\\Users\\Test\\file.txt';
+      expect(shortenPath(p, 40)).toBe(p);
+    });
+
+    it('should not shorten a path that is equal to maxLen', () => {
+      const p = 'C\\path\\to\\file.txt';
+      expect(shortenPath(p, p.length)).toBe(p);
+    });
+
+    it('should shorten a long path, keeping start and end from a short limit', () => {
+      const p = 'C\\path\\to\\a\\very\\long\\directory\\name\\file.txt';
+      expect(shortenPath(p, 30)).toBe('C\\...\\directory\\name\\file.txt');
+    });
+
+    it('should shorten a long path, keeping more from the end from a longer limit', () => {
+      const p = 'C\\path\\to\\a\\very\\long\\directory\\name\\file.txt';
+      expect(shortenPath(p, 42)).toBe(
+        'C\\...\\a\\very\\long\\directory\\name\\file.txt',
+      );
+    });
+
+    it('should handle deep paths where few segments from the end fit', () => {
+      const p =
+        'C\\a\\b\\c\\d\\e\\f\\g\\h\\i\\j\\k\\l\\m\\n\\o\\p\\q\\r\\s\\t\\u\\v\\w\\x\\y\\z\\file.txt';
+      expect(shortenPath(p, 22)).toBe('C\\...\\w\\x\\y\\z\\file.txt');
+    });
+
+    it('should handle deep paths where many segments from the end fit', () => {
+      const p =
+        'C\\a\\b\\c\\d\\e\\f\\g\\h\\i\\j\\k\\l\\m\\n\\o\\p\\q\\r\\s\\t\\u\\v\\w\\x\\y\\z\\file.txt';
+      expect(shortenPath(p, 47)).toBe(
+        'C\\...\\k\\l\\m\\n\\o\\p\\q\\r\\s\\t\\u\\v\\w\\x\\y\\z\\file.txt',
+      );
+    });
+
+    it('should handle a long filename in the root when it needs shortening', () => {
+      const p = 'C\\a-very-long-filename-that-needs-to-be-shortened.txt';
+      expect(shortenPath(p, 40)).toBe(
+        'C\\a-very-long-file...o-be-shortened.txt',
+      );
+    });
+
+    it('should handle root path', () => {
+      const p = 'C\\';
+      expect(shortenPath(p, 10)).toBe('C\\');
+    });
+
+    it('should handle a path with one long segment after root', () => {
+      const p = 'C\\a-very-long-directory-name';
+      expect(shortenPath(p, 22)).toBe('C\\a-very-...tory-name');
+    });
+
+    it('should handle a path with just a long filename (no root)', () => {
+      const p = 'a-very-long-filename-that-needs-to-be-shortened.txt';
+      expect(shortenPath(p, 40)).toBe(
+        'a-very-long-filena...o-be-shortened.txt',
+      );
+    });
+
+    it('should fallback to truncating earlier segments while keeping the last intact', () => {
+      const p = 'C\\abcdef\\fghij.txt';
+      const result = shortenPath(p, 15);
+      expect(result).toBe('C\\...\\fghij.txt');
+      expect(result.length).toBeLessThanOrEqual(15);
+    });
+
+    it('should fallback by truncating start and middle segments when needed', () => {
+      const p = 'C\\averylongcomponentname\\another\\short.txt';
+      const result = shortenPath(p, 30);
+      expect(result).toBe('C\\...\\another\\short.txt');
+      expect(result.length).toBeLessThanOrEqual(30);
+    });
+
+    it('should show only the last segment for tiny maxLen values', () => {
+      const p = 'C\\foo\\bar\\baz.txt';
+      const result = shortenPath(p, 12);
+      expect(result).toBe('...\\baz.txt');
+      expect(result.length).toBeLessThanOrEqual(12);
+    });
+
+    it('should keep the drive prefix when space allows', () => {
+      const p = 'C\\foo\\bar\\baz.txt';
+      const result = shortenPath(p, 14);
+      expect(result).toBe('C\\...\\baz.txt');
+      expect(result.length).toBeLessThanOrEqual(14);
+    });
+
+    it('should fall back when the last segment exceeds maxLen on Windows', () => {
+      const longFile = 'x'.repeat(60) + '.txt';
+      const p = `C\\really\\long\\${longFile}`;
+      const result = shortenPath(p, 40);
+      expect(result).toBe('C\\really\\long\\xxxx...xxxxxxxxxxxxxx.txt');
+      expect(result.length).toBeLessThanOrEqual(40);
+    });
+
+    it('should handle UNC paths with limited space', () => {
+      const p = '\\server\\share\\deep\\path\\file.txt';
+      const result = shortenPath(p, 25);
+      expect(result).toBe('\\server\\...\\path\\file.txt');
+      expect(result.length).toBeLessThanOrEqual(25);
+    });
+
+    it('should collapse UNC paths further when maxLen shrinks', () => {
+      const p = '\\server\\share\\deep\\path\\file.txt';
+      const result = shortenPath(p, 18);
+      expect(result).toBe('\\s...\\...\\file.txt');
+      expect(result.length).toBeLessThanOrEqual(18);
+    });
+  });
+});
diff --git a/packages/core/src/utils/paths.ts b/packages/core/src/utils/paths.ts
index 5723527996..0546e11ffe 100644
--- a/packages/core/src/utils/paths.ts
+++ b/packages/core/src/utils/paths.ts
@@ -40,6 +40,53 @@ export function shortenPath(filePath: string, maxLen: number = 35): string {
     return filePath;
   }
 
+  const simpleTruncate = () => {
+    const keepLen = Math.floor((maxLen - 3) / 2);
+    if (keepLen <= 0) {
+      return filePath.substring(0, maxLen - 3) + '...';
+    }
+    const start = filePath.substring(0, keepLen);
+    const end = filePath.substring(filePath.length - keepLen);
+    return `${start}...${end}`;
+  };
+
+  type TruncateMode = 'start' | 'end' | 'center';
+
+  const truncateComponent = (
+    component: string,
+    targetLength: number,
+    mode: TruncateMode,
+  ): string => {
+    if (component.length <= targetLength) {
+      return component;
+    }
+
+    if (targetLength <= 0) {
+      return '';
+    }
+
+    if (targetLength <= 3) {
+      if (mode === 'end') {
+        return component.slice(-targetLength);
+      }
+      return component.slice(0, targetLength);
+    }
+
+    if (mode === 'start') {
+      return `${component.slice(0, targetLength - 3)}...`;
+    }
+
+    if (mode === 'end') {
+      return `...${component.slice(component.length - (targetLength - 3))}`;
+    }
+
+    const front = Math.ceil((targetLength - 3) / 2);
+    const back = targetLength - 3 - front;
+    return `${component.slice(0, front)}...${component.slice(
+      component.length - back,
+    )}`;
+  };
+
   const parsedPath = path.parse(filePath);
   const root = parsedPath.root;
   const separator = path.sep;
@@ -51,51 +98,134 @@ export function shortenPath(filePath: string, maxLen: number = 35): string {
   // Handle cases with no segments after root (e.g., "/", "C:\") or only one segment
   if (segments.length <= 1) {
     // Fall back to simple start/end truncation for very short paths or single segments
-    const keepLen = Math.floor((maxLen - 3) / 2);
-    // Ensure keepLen is not negative if maxLen is very small
-    if (keepLen <= 0) {
-      return filePath.substring(0, maxLen - 3) + '...';
-    }
-    const start = filePath.substring(0, keepLen);
-    const end = filePath.substring(filePath.length - keepLen);
-    return `${start}...${end}`;
+    return simpleTruncate();
   }
 
   const firstDir = segments[0];
   const lastSegment = segments[segments.length - 1];
   const startComponent = root + firstDir;
 
-  const endPartSegments: string[] = [];
-  // Base length: separator + "..." + lastDir
-  let currentLength = separator.length + lastSegment.length;
+  const endPartSegments = [lastSegment];
+  let endPartLength = lastSegment.length;
 
-  // Iterate backwards through segments (excluding the first one)
-  for (let i = segments.length - 2; i >= 0; i--) {
+  // Iterate backwards through the middle segments
+  for (let i = segments.length - 2; i > 0; i--) {
     const segment = segments[i];
-    // Length needed if we add this segment: current + separator + segment
-    const lengthWithSegment = currentLength + separator.length + segment.length;
+    const newLength =
+      startComponent.length +
+      separator.length +
+      3 + // for "..."
+      separator.length +
+      endPartLength +
+      separator.length +
+      segment.length;
 
-    if (lengthWithSegment <= maxLen) {
-      endPartSegments.unshift(segment); // Add to the beginning of the end part
-      currentLength = lengthWithSegment;
+    if (newLength <= maxLen) {
+      endPartSegments.unshift(segment);
+      endPartLength += separator.length + segment.length;
     } else {
       break;
     }
   }
 
-  let result = endPartSegments.join(separator) + separator + lastSegment;
+  const components = [firstDir, ...endPartSegments];
+  const componentModes: TruncateMode[] = components.map((_, index) => {
+    if (index === 0) {
+      return 'start';
+    }
+    if (index === components.length - 1) {
+      return 'end';
+    }
+    return 'center';
+  });
 
-  if (currentLength > maxLen) {
-    return result;
+  const separatorsCount = endPartSegments.length + 1;
+  const fixedLen = root.length + separatorsCount * separator.length + 3; // ellipsis length
+  const availableForComponents = maxLen - fixedLen;
+
+  const trailingFallback = () => {
+    const ellipsisTail = `...${separator}${lastSegment}`;
+    if (ellipsisTail.length <= maxLen) {
+      return ellipsisTail;
+    }
+
+    if (root) {
+      const rootEllipsisTail = `${root}...${separator}${lastSegment}`;
+      if (rootEllipsisTail.length <= maxLen) {
+        return rootEllipsisTail;
+      }
+    }
+
+    if (root && `${root}${lastSegment}`.length <= maxLen) {
+      return `${root}${lastSegment}`;
+    }
+
+    if (lastSegment.length <= maxLen) {
+      return lastSegment;
+    }
+
+    // As a final resort (e.g., last segment itself exceeds maxLen), fall back to simple truncation.
+    return simpleTruncate();
+  };
+
+  if (availableForComponents <= 0) {
+    return trailingFallback();
   }
 
-  // Construct the final path
-  result = startComponent + separator + result;
+  const minLengths = components.map((component, index) => {
+    if (index === 0) {
+      return Math.min(component.length, 1);
+    }
+    if (index === components.length - 1) {
+      return component.length; // Never truncate the last segment when possible.
+    }
+    return Math.min(component.length, 1);
+  });
+
+  const minTotal = minLengths.reduce((sum, len) => sum + len, 0);
+  if (availableForComponents < minTotal) {
+    return trailingFallback();
+  }
+
+  const budgets = components.map((component) => component.length);
+  let currentTotal = budgets.reduce((sum, len) => sum + len, 0);
+
+  const pickIndexToReduce = () => {
+    let bestIndex = -1;
+    let bestScore = -Infinity;
+    for (let i = 0; i < budgets.length; i++) {
+      if (budgets[i] <= minLengths[i]) {
+        continue;
+      }
+      const isLast = i === budgets.length - 1;
+      const score = (isLast ? 0 : 1_000_000) + budgets[i];
+      if (score > bestScore) {
+        bestScore = score;
+        bestIndex = i;
+      }
+    }
+    return bestIndex;
+  };
+
+  while (currentTotal > availableForComponents) {
+    const index = pickIndexToReduce();
+    if (index === -1) {
+      return trailingFallback();
+    }
+    budgets[index]--;
+    currentTotal--;
+  }
+
+  const truncatedComponents = components.map((component, index) =>
+    truncateComponent(component, budgets[index], componentModes[index]),
+  );
+
+  const truncatedFirst = truncatedComponents[0];
+  const truncatedEnd = truncatedComponents.slice(1).join(separator);
+  const result = `${root}${truncatedFirst}${separator}...${separator}${truncatedEnd}`;
 
-  // As a final check, if the result is somehow still too long
-  // truncate the result string from the beginning, prefixing with "...".
   if (result.length > maxLen) {
-    return '...' + result.substring(result.length - maxLen - 3);
+    return trailingFallback();
   }
 
   return result;