You have enabled the Tab Moves Focus -mode.
Press Ctrl+M to disable the mode. After that your Tab-key indents your code again.
Pressing Ctrl+M did not disable the mode for me, however the right side of the bar along the bottom of vs-code shows
Tab Moves Focus as enabled, which you can click to disable.
Ctrl+M didn’t work for me either (Ctrl+shift+p Tab Moves Focus)
I think it’s a bug, just close VSCode and reopen