diff --git a/cli/azd/extensions/azure.ai.agents/README.md b/cli/azd/extensions/azure.ai.agents/README.md
index 0e4b081398c..0b4b9dd8a1f 100644
--- a/cli/azd/extensions/azure.ai.agents/README.md
+++ b/cli/azd/extensions/azure.ai.agents/README.md
@@ -32,20 +32,6 @@
    azd x publish
    ```
 
-   > **Troubleshooting**: If `azd x publish` fails with "(Failed to load registry)":
-   > 1. Create the registry file (needs to be valid JSON):
-   >    ```bash
-   >    echo '{}' > ~/.azd/registry.json
-   >    ```
-   > 2. Add the local registry as a source:
-   >    ```bash
-   >    azd ext source add -n local -l registry.json -t file
-   >    ```
-   > 3. Retry the publish command:
-   >    ```bash
-   >    azd x publish
-   >    ```
-
 3. **Install the extension**:
    ```bash
    azd ext install azure.ai.agents
diff --git a/cli/azd/extensions/microsoft.azd.extensions/README.md b/cli/azd/extensions/microsoft.azd.extensions/README.md
index 195563d05aa..a942bb41ef5 100644
--- a/cli/azd/extensions/microsoft.azd.extensions/README.md
+++ b/cli/azd/extensions/microsoft.azd.extensions/README.md
@@ -1,3 +1,13 @@
 # `azd` X Extension
 
 The `X` extension is used for developing `azd` extensions.
+
+## Local development
+
+```bash
+# Use current version of 'microsoft.azd.extensions' in the registry for bootstrapping
+azd x build --skip-install
+
+# Perform a manual installation
+cp -f bin/* ~/.azd/extensions/microsoft.azd.extensions/
+```
diff --git a/cli/azd/extensions/microsoft.azd.extensions/build-orig.sh b/cli/azd/extensions/microsoft.azd.extensions/build-orig.sh
deleted file mode 100644
index 399828dd130..00000000000
--- a/cli/azd/extensions/microsoft.azd.extensions/build-orig.sh
+++ /dev/null
@@ -1,84 +0,0 @@
-#!/bin/bash
-
-# Get the directory of the script
-SCRIPT_DIR="$(cd "$(dirname "$0")" && pwd)"
-
-# Change to the script directory
-cd "$SCRIPT_DIR" || exit
-
-# Parse named input parameters: --app-name and --version
-while [[ "$#" -gt 0 ]]; do
-    case $1 in
-    --app-name)
-        APP_NAME="$2"
-        shift 2
-        ;;
-    --version)
-        VERSION="$2"
-        shift 2
-        ;;
-    *)
-        echo "Unknown parameter passed: $1"
-        exit 1
-        ;;
-    esac
-done
-
-if [ -z "$APP_NAME" ]; then
-    echo "Error: --app-name parameter is required"
-    exit 1
-fi
-
-if [ -z "$VERSION" ]; then
-    echo "Error: --version parameter is required"
-    exit 1
-fi
-
-# Create a safe version of APP_NAME replacing dots with dashes
-APP_NAME_SAFE="${APP_NAME//./-}"
-
-# Define output directory
-OUTPUT_DIR="$SCRIPT_DIR/bin"
-
-# Create output and target directories if they don't exist
-mkdir -p "$OUTPUT_DIR"
-mkdir -p "$HOME/.azd/extensions/$APP_NAME" # new: create destination directory
-
-# Get Git commit hash and build date
-COMMIT=$(git rev-parse HEAD)
-BUILD_DATE=$(date -u +%Y-%m-%dT%H:%M:%SZ)
-
-# List of OS and architecture combinations
-PLATFORMS=(
-    "windows/amd64"
-)
-
-APP_PATH="github.com/azure/azure-dev/cli/azd/extensions/$APP_NAME/internal/cmd"
-
-# Loop through platforms and build
-for PLATFORM in "${PLATFORMS[@]}"; do
-    OS=$(echo "$PLATFORM" | cut -d'/' -f1)
-    ARCH=$(echo "$PLATFORM" | cut -d'/' -f2)
-
-    OUTPUT_NAME="$OUTPUT_DIR/$APP_NAME_SAFE-$OS-$ARCH"
-
-    if [ "$OS" = "windows" ]; then
-        OUTPUT_NAME+='.exe'
-    fi
-
-    echo "Building for $OS/$ARCH..."
-    GOOS=$OS GOARCH=$ARCH go build \
-        -ldflags="-X '$APP_PATH.Version=$VERSION' -X '$APP_PATH.Commit=$COMMIT' -X '$APP_PATH.BuildDate=$BUILD_DATE'" \
-        -o "$OUTPUT_NAME"
-
-    if [ $? -ne 0 ]; then
-        echo "An error occurred while building for $OS/$ARCH"
-        exit 1
-    fi
-
-    # new: copy built binary to extensions folder
-    cp "$OUTPUT_NAME" "$HOME/.azd/extensions/$APP_NAME"
-done
-
-echo "Build completed successfully!"
-echo "Binaries are located in the $OUTPUT_DIR directory."
diff --git a/cli/azd/extensions/microsoft.azd.extensions/internal/cmd/watch.go b/cli/azd/extensions/microsoft.azd.extensions/internal/cmd/watch.go
index 64563e5eabd..5f2bf26b2d0 100644
--- a/cli/azd/extensions/microsoft.azd.extensions/internal/cmd/watch.go
+++ b/cli/azd/extensions/microsoft.azd.extensions/internal/cmd/watch.go
@@ -56,6 +56,7 @@ func runWatchAction(ctx context.Context, flags *watchFlags) error {
 		"obj":          {},
 		"build":        {},
 		"node_modules": {},
+		".git":         {},
 	}
 
 	globIgnorePaths := []string{}