diff --git a/scripts/modules/ai-services.js b/scripts/modules/ai-services.js
index cc3e8169..9be55b19 100644
--- a/scripts/modules/ai-services.js
+++ b/scripts/modules/ai-services.js
@@ -3,11 +3,14 @@
  * AI service interactions for the Task Master CLI
  */
 
+// NOTE/TODO: Include the beta header output-128k-2025-02-19 in your API request to increase the maximum output token length to 128k tokens for Claude 3.7 Sonnet.
+
 import { Anthropic } from '@anthropic-ai/sdk';
 import OpenAI from 'openai';
 import dotenv from 'dotenv';
 import { CONFIG, log, sanitizePrompt } from './utils.js';
 import { startLoadingIndicator, stopLoadingIndicator } from './ui.js';
+import chalk from 'chalk';
 
 // Load environment variables
 dotenv.config();
@@ -37,6 +40,38 @@ function getPerplexityClient() {
   return perplexity;
 }
 
+/**
+ * Handle Claude API errors with user-friendly messages
+ * @param {Error} error - The error from Claude API
+ * @returns {string} User-friendly error message
+ */
+function handleClaudeError(error) {
+  // Check if it's a structured error response
+  if (error.type === 'error' && error.error) {
+    switch (error.error.type) {
+      case 'overloaded_error':
+        return 'Claude is currently experiencing high demand and is overloaded. Please wait a few minutes and try again.';
+      case 'rate_limit_error':
+        return 'You have exceeded the rate limit. Please wait a few minutes before making more requests.';
+      case 'invalid_request_error':
+        return 'There was an issue with the request format. If this persists, please report it as a bug.';
+      default:
+        return `Claude API error: ${error.error.message}`;
+    }
+  }
+  
+  // Check for network/timeout errors
+  if (error.message?.toLowerCase().includes('timeout')) {
+    return 'The request to Claude timed out. Please try again.';
+  }
+  if (error.message?.toLowerCase().includes('network')) {
+    return 'There was a network error connecting to Claude. Please check your internet connection and try again.';
+  }
+  
+  // Default error message
+  return `Error communicating with Claude: ${error.message}`;
+}
+
 /**
  * Call Claude to generate tasks from a PRD
  * @param {string} prdContent - PRD content
@@ -99,14 +134,27 @@ Important: Your response must be valid JSON only, with no additional explanation
     // Use streaming request to handle large responses and show progress
     return await handleStreamingRequest(prdContent, prdPath, numTasks, CONFIG.maxTokens, systemPrompt);
   } catch (error) {
-    log('error', 'Error calling Claude:', error.message);
+    // Get user-friendly error message
+    const userMessage = handleClaudeError(error);
+    log('error', userMessage);
 
-    // Retry logic
-    if (retryCount < 2) {
-      log('info', `Retrying (${retryCount + 1}/2)...`);
+    // Retry logic for certain errors
+    if (retryCount < 2 && (
+      error.error?.type === 'overloaded_error' || 
+      error.error?.type === 'rate_limit_error' ||
+      error.message?.toLowerCase().includes('timeout') ||
+      error.message?.toLowerCase().includes('network')
+    )) {
+      const waitTime = (retryCount + 1) * 5000; // 5s, then 10s
+      log('info', `Waiting ${waitTime/1000} seconds before retry ${retryCount + 1}/2...`);
+      await new Promise(resolve => setTimeout(resolve, waitTime));
       return await callClaude(prdContent, prdPath, numTasks, retryCount + 1);
     } else {
-      throw error;
+      console.error(chalk.red(userMessage));
+      if (CONFIG.debug) {
+        log('debug', 'Full error:', error);
+      }
+      throw new Error(userMessage);
     }
   }
 }
@@ -166,7 +214,17 @@ async function handleStreamingRequest(prdContent, prdPath, numTasks, maxTokens,
   } catch (error) {
     if (streamingInterval) clearInterval(streamingInterval);
     stopLoadingIndicator(loadingIndicator);
-    throw error;
+    
+    // Get user-friendly error message
+    const userMessage = handleClaudeError(error);
+    log('error', userMessage);
+    console.error(chalk.red(userMessage));
+    
+    if (CONFIG.debug) {
+      log('debug', 'Full error:', error);
+    }
+    
+    throw new Error(userMessage);
   }
 }
 
@@ -613,5 +671,6 @@ export {
   generateSubtasks,
   generateSubtasksWithPerplexity,
   parseSubtasksFromText,
-  generateComplexityAnalysisPrompt
+  generateComplexityAnalysisPrompt,
+  handleClaudeError
 }; 
\ No newline at end of file
diff --git a/tests/unit/ai-services.test.js b/tests/unit/ai-services.test.js
index cadc4850..52821897 100644
--- a/tests/unit/ai-services.test.js
+++ b/tests/unit/ai-services.test.js
@@ -285,4 +285,89 @@ These subtasks will help you implement the parent task efficiently.`;
       });
     });
   });
+
+  describe('handleClaudeError function', () => {
+    // Import the function directly for testing
+    let handleClaudeError;
+    
+    beforeAll(async () => {
+      // Dynamic import to get the actual function
+      const module = await import('../../scripts/modules/ai-services.js');
+      handleClaudeError = module.handleClaudeError;
+    });
+
+    test('should handle overloaded_error type', () => {
+      const error = {
+        type: 'error',
+        error: {
+          type: 'overloaded_error',
+          message: 'Claude is experiencing high volume'
+        }
+      };
+      
+      const result = handleClaudeError(error);
+      
+      expect(result).toContain('Claude is currently experiencing high demand');
+      expect(result).toContain('overloaded');
+    });
+
+    test('should handle rate_limit_error type', () => {
+      const error = {
+        type: 'error',
+        error: {
+          type: 'rate_limit_error',
+          message: 'Rate limit exceeded'
+        }
+      };
+      
+      const result = handleClaudeError(error);
+      
+      expect(result).toContain('exceeded the rate limit');
+    });
+
+    test('should handle invalid_request_error type', () => {
+      const error = {
+        type: 'error',
+        error: {
+          type: 'invalid_request_error',
+          message: 'Invalid request parameters'
+        }
+      };
+      
+      const result = handleClaudeError(error);
+      
+      expect(result).toContain('issue with the request format');
+    });
+
+    test('should handle timeout errors', () => {
+      const error = {
+        message: 'Request timed out after 60000ms'
+      };
+      
+      const result = handleClaudeError(error);
+      
+      expect(result).toContain('timed out');
+    });
+
+    test('should handle network errors', () => {
+      const error = {
+        message: 'Network error occurred'
+      };
+      
+      const result = handleClaudeError(error);
+      
+      expect(result).toContain('network error');
+    });
+
+    test('should handle generic errors', () => {
+      const error = {
+        message: 'Something unexpected happened'
+      };
+      
+      const result = handleClaudeError(error);
+      
+      expect(result).toContain('Error communicating with Claude');
+      expect(result).toContain('Something unexpected happened');
+    });
+  });
 }); 
\ No newline at end of file