Hey, thanks for the report.
This is a known issue that was fixed recently. Here are a couple things to try:
- Reload Window: Command Palette → “Reload Window”
- Create a rule via the UI: Settings → Rules → + Add Rule, then check whether new rules use the RULE.md folder format
If you’re still on 2.3.1 or 2.3.2 and it’s not working, the fix may land in the next build. As a workaround, .mdc files work reliably for now.
Related thread with more context: Project Rules: Documented RULE.md folder format not working, only undocumented .mdc format works
Let me know if Reload Window helps, or if the issue still persists after creating a rule via the UI.