• Embedded code indentation is no longer handled by @volar/language-service, but instead calculated and passed as initialIndentLevel, which is then reliably handled by ServicePlugin for additional indentation in specific languages.

• The provideDocumentFormattingEdits and provideOnTypeFormattingEdits APIs now accept the EmbeddedCodeFormattingOptions parameter, which includes initialIndentLevel.

• Formatting ranges are now correctly mapped to embedded code formatting ranges.

• Removed the no longer needed ServicePlugin.provideFormattingIndentSensitiveLines API.

• No longer relies on the conventional volar.format.initialIndent editor setting.

• Added ServicePlugin.resolveEmbeddedCodeFormattingOptions API, allowing downstream tools to modify the initialIndentLevel passed to ServicePlugin based on custom settings (replacing volar.format.initialIndent).

  Here's an example of its usage in Vue:

   async resolveEmbeddedCodeFormattingOptions(code, options) {
   	const sourceFile = context.language.files.getByVirtualCode(code);
   	if (sourceFile.generated?.code instanceof vue.VueGeneratedCode) {
   		if (code.id === 'scriptFormat' || code.id === 'scriptSetupFormat') {
   			if (await context.env.getConfiguration?.('vue.format.initialIndent.script') ?? false) {
   				options.initialIndentLevel++;
   			}
   		}
   		else if (code.id.startsWith('style_')) {
   			if (await context.env.getConfiguration?.('vue.format.initialIndent.style') ?? false) {
   				options.initialIndentLevel++;
   			}
   		}
   		else if (code.id === 'template') {
   			if (await context.env.getConfiguration?.('vue.format.initialIndent.template') ?? true) {
   				options.initialIndentLevel++;
   			}
   		}
   	}
   	return options;
   },

With these changes, all formatting tests in microsoft/vscode#171547 have passed.