diff --git a/docs/design/extension-management-v2.md b/docs/design/extension-management-v2.md
index 1b23ed8d2d6..b68d1c5049d 100644
--- a/docs/design/extension-management-v2.md
+++ b/docs/design/extension-management-v2.md
@@ -103,9 +103,9 @@ type InitialActivation =
   | { scope: 'workspace'; workspaceId: string };
 ```
 
-The daemon install endpoint accepts HTTPS Git, GitHub Release, and npm sources
-under the public network policy. SSH and local/link sources remain local CLI
-features. Update preserves the extension id,
+The daemon install endpoint accepts HTTPS Git, GitHub Release, npm, and
+absolute-path local sources. SSH and link sources remain local CLI features.
+Update preserves the extension id,
 manifest name, settings, and activation policy. “Already current” is a
 successful `updated: false` result. Uninstall is idempotent and removes both the
 artifact and policy.
diff --git a/packages/cli/src/serve/routes/workspace-extensions-controller.test.ts b/packages/cli/src/serve/routes/workspace-extensions-controller.test.ts
index b8cc2437ef9..9e553d480f1 100644
--- a/packages/cli/src/serve/routes/workspace-extensions-controller.test.ts
+++ b/packages/cli/src/serve/routes/workspace-extensions-controller.test.ts
@@ -49,6 +49,21 @@ describe('createExtensionsController', () => {
     vi.restoreAllMocks();
   });
 
+  it('does not impose a public-only extension network policy', () => {
+    const controller = createExtensionsController({
+      boundWorkspace: '/work/bound',
+      bridge: {} as AcpSessionBridge,
+      workspace: {} as DaemonWorkspaceService,
+      isWorkspaceTrusted: () => true,
+    });
+
+    const manager = controller.createExtensionManager() as unknown as {
+      networkPolicy?: string;
+    };
+
+    expect(manager.networkPolicy).toBeUndefined();
+  });
+
   it('releases the commit lane when a manual refresh times out', async () => {
     vi.useFakeTimers();
     let refreshCalls = 0;
diff --git a/packages/cli/src/serve/routes/workspace-extensions-controller.ts b/packages/cli/src/serve/routes/workspace-extensions-controller.ts
index 6fd48a145c2..e8345d0cae2 100644
--- a/packages/cli/src/serve/routes/workspace-extensions-controller.ts
+++ b/packages/cli/src/serve/routes/workspace-extensions-controller.ts
@@ -309,7 +309,6 @@ export function createExtensionsController(
         getWorkspaceTrustStatus(loadSettings(workspaceDir).merged, workspaceDir)
           .effective.state === 'trusted',
       requestConsent: () => Promise.resolve(),
-      networkPolicy: 'public',
       requestSetting:
         interactions?.requestSetting ??
         (async (setting: ExtensionSetting) => {
diff --git a/packages/cli/src/serve/routes/workspace-extensions.ts b/packages/cli/src/serve/routes/workspace-extensions.ts
index 5854f37016c..b9e1095a967 100644
--- a/packages/cli/src/serve/routes/workspace-extensions.ts
+++ b/packages/cli/src/serve/routes/workspace-extensions.ts
@@ -341,9 +341,7 @@ const validateExtensionSourceMetadata = (
   const parsed = parsePotentialSourceUrl(installMetadata.source);
   return (
     !!parsed &&
-    (installMetadata.networkPolicy === 'public'
-      ? parsed.protocol === 'https:'
-      : parsed.protocol === 'https:' || parsed.protocol === 'ssh:') &&
+    parsed.protocol === 'https:' &&
     !isBlockedAuthProviderHost(parsed.hostname)
   );
 };
@@ -1108,9 +1106,7 @@ export function registerWorkspaceExtensionRoutes(
           isPortableAbsolutePath(sourceValue) || sourceValue.startsWith('.');
         if (localSource) {
           try {
-            const metadata = await parseInstallSource(sourceValue, {
-              networkPolicy: 'public',
-            });
+            const metadata = await parseInstallSource(sourceValue);
             assertDaemonExtensionInstallSource(
               metadata,
               sourceValue,
@@ -1165,9 +1161,7 @@ export function registerWorkspaceExtensionRoutes(
           res,
           async (extensionManager, _signal, context, operationId) => {
             const prepared = await context!.prepare(async (signal) => {
-              const installMetadata = await parseInstallSource(sourceValue, {
-                networkPolicy: 'public',
-              });
+              const installMetadata = await parseInstallSource(sourceValue);
 
               assertDaemonExtensionInstallSource(
                 installMetadata,
@@ -1970,9 +1964,7 @@ export function registerWorkspaceExtensionRoutes(
       gitCredential?.persistence === 'one_time' ? {} : { source: sourceValue },
       async (extensionManager, _signal, context) => {
         const prepared = await context!.prepare(async (signal) => {
-          const metadata = await parseInstallSource(sourceValue, {
-            networkPolicy: 'public',
-          });
+          const metadata = await parseInstallSource(sourceValue);
           assertDaemonExtensionInstallSource(
             metadata,
             sourceValue,
diff --git a/packages/cli/src/serve/routes/workspace-qualified-extensions.test.ts b/packages/cli/src/serve/routes/workspace-qualified-extensions.test.ts
index 1021a9a164c..78a1ad82ee7 100644
--- a/packages/cli/src/serve/routes/workspace-qualified-extensions.test.ts
+++ b/packages/cli/src/serve/routes/workspace-qualified-extensions.test.ts
@@ -1890,6 +1890,9 @@ describe('extension management v2 REST', () => {
             },
           }),
         );
+        expect(
+          prepareInstall.mock.calls.at(-1)?.[0].installMetadata,
+        ).not.toHaveProperty('networkPolicy');
         expect(JSON.stringify(operation)).not.toContain('fine-grained-token');
         expect(JSON.stringify(h.primary.bridge)).not.toContain(
           'fine-grained-token',
diff --git a/packages/cli/src/serve/server.test.ts b/packages/cli/src/serve/server.test.ts
index 4aab38d1e0c..fc3691b2706 100644
--- a/packages/cli/src/serve/server.test.ts
+++ b/packages/cli/src/serve/server.test.ts
@@ -8056,6 +8056,7 @@ describe('createServeApp', () => {
               persistence: expected,
             },
           });
+          expect(captured?.installMetadata).not.toHaveProperty('networkPolicy');
           await vi.waitFor(() =>
             expect(bridge.extensionEvents.at(-1)).toMatchObject({
               status: 'installed',