diff --git a/frontend/src/components/Chat.test.tsx b/frontend/src/components/Chat.test.tsx
index d59f1ab..174fa22 100644
--- a/frontend/src/components/Chat.test.tsx
+++ b/frontend/src/components/Chat.test.tsx
@@ -892,3 +892,164 @@ describe("Chat message queue (Story 155)", () => {
 		});
 	});
 });
+
+describe("Remove bubble styling from streaming messages (Story 163)", () => {
+	beforeEach(() => {
+		capturedWsHandlers = null;
+		setupMocks();
+	});
+
+	it("AC1: streaming assistant message uses transparent background, no extra padding, no border-radius", async () => {
+		render(<Chat projectPath="/tmp/project" onCloseProject={vi.fn()} />);
+
+		await waitFor(() => expect(capturedWsHandlers).not.toBeNull());
+
+		// Send a message to put chat into loading state
+		const input = screen.getByPlaceholderText("Send a message...");
+		await act(async () => {
+			fireEvent.change(input, { target: { value: "Hello" } });
+		});
+		await act(async () => {
+			fireEvent.keyDown(input, { key: "Enter", shiftKey: false });
+		});
+
+		// Simulate streaming tokens arriving
+		act(() => {
+			capturedWsHandlers?.onToken("Streaming response text");
+		});
+
+		// Find the streaming message container (the inner div wrapping the Markdown)
+		const streamingText = await screen.findByText("Streaming response text");
+		// The markdown-body wrapper is the parent, and the styled div is its parent
+		const styledDiv = streamingText.closest(".markdown-body")
+			?.parentElement as HTMLElement;
+
+		expect(styledDiv).toBeTruthy();
+		const styleAttr = styledDiv.getAttribute("style") ?? "";
+		expect(styleAttr).toContain("background: transparent");
+		expect(styleAttr).toContain("padding: 0px");
+		expect(styleAttr).toContain("border-radius: 0px");
+		expect(styleAttr).toContain("max-width: 100%");
+	});
+
+	it("AC1: streaming message wraps Markdown in markdown-body class", async () => {
+		render(<Chat projectPath="/tmp/project" onCloseProject={vi.fn()} />);
+
+		await waitFor(() => expect(capturedWsHandlers).not.toBeNull());
+
+		const input = screen.getByPlaceholderText("Send a message...");
+		await act(async () => {
+			fireEvent.change(input, { target: { value: "Hello" } });
+		});
+		await act(async () => {
+			fireEvent.keyDown(input, { key: "Enter", shiftKey: false });
+		});
+
+		act(() => {
+			capturedWsHandlers?.onToken("Some markdown content");
+		});
+
+		const streamingText = await screen.findByText("Some markdown content");
+		const markdownBody = streamingText.closest(".markdown-body");
+		expect(markdownBody).toBeTruthy();
+	});
+
+	it("AC2: no visual change when streaming ends and message transitions to completed", async () => {
+		render(<Chat projectPath="/tmp/project" onCloseProject={vi.fn()} />);
+
+		await waitFor(() => expect(capturedWsHandlers).not.toBeNull());
+
+		// Send a message to start streaming
+		const input = screen.getByPlaceholderText("Send a message...");
+		await act(async () => {
+			fireEvent.change(input, { target: { value: "Hello" } });
+		});
+		await act(async () => {
+			fireEvent.keyDown(input, { key: "Enter", shiftKey: false });
+		});
+
+		// Simulate streaming tokens
+		act(() => {
+			capturedWsHandlers?.onToken("Final response");
+		});
+
+		// Capture streaming message style attribute
+		const streamingText = await screen.findByText("Final response");
+		const streamingStyledDiv = streamingText.closest(".markdown-body")
+			?.parentElement as HTMLElement;
+		const streamingStyleAttr = streamingStyledDiv.getAttribute("style") ?? "";
+
+		// Transition: onUpdate completes the message
+		act(() => {
+			capturedWsHandlers?.onUpdate([
+				{ role: "user", content: "Hello" },
+				{ role: "assistant", content: "Final response" },
+			]);
+		});
+
+		// Find the completed message — it should have the same styling
+		const completedText = await screen.findByText("Final response");
+		const completedMarkdownBody = completedText.closest(".markdown-body");
+		const completedStyledDiv =
+			completedMarkdownBody?.parentElement as HTMLElement;
+
+		expect(completedStyledDiv).toBeTruthy();
+		const completedStyleAttr = completedStyledDiv.getAttribute("style") ?? "";
+
+		// Both streaming and completed use transparent bg, 0 padding, 0 border-radius
+		expect(completedStyleAttr).toContain("background: transparent");
+		expect(completedStyleAttr).toContain("padding: 0px");
+		expect(completedStyleAttr).toContain("border-radius: 0px");
+		expect(streamingStyleAttr).toContain("background: transparent");
+		expect(streamingStyleAttr).toContain("padding: 0px");
+		expect(streamingStyleAttr).toContain("border-radius: 0px");
+
+		// Both have the markdown-body class wrapper
+		expect(streamingStyledDiv.querySelector(".markdown-body")).toBeTruthy();
+	});
+
+	it("AC3: completed assistant messages retain transparent background and no border-radius", async () => {
+		render(<Chat projectPath="/tmp/project" onCloseProject={vi.fn()} />);
+
+		await waitFor(() => expect(capturedWsHandlers).not.toBeNull());
+
+		act(() => {
+			capturedWsHandlers?.onUpdate([
+				{ role: "user", content: "Hi" },
+				{ role: "assistant", content: "Hello there!" },
+			]);
+		});
+
+		const assistantText = await screen.findByText("Hello there!");
+		const markdownBody = assistantText.closest(".markdown-body");
+		const styledDiv = markdownBody?.parentElement as HTMLElement;
+
+		expect(styledDiv).toBeTruthy();
+		const styleAttr = styledDiv.getAttribute("style") ?? "";
+		expect(styleAttr).toContain("background: transparent");
+		expect(styleAttr).toContain("padding: 0px");
+		expect(styleAttr).toContain("border-radius: 0px");
+		expect(styleAttr).toContain("max-width: 100%");
+	});
+
+	it("AC3: completed user messages still have their bubble styling", async () => {
+		render(<Chat projectPath="/tmp/project" onCloseProject={vi.fn()} />);
+
+		await waitFor(() => expect(capturedWsHandlers).not.toBeNull());
+
+		act(() => {
+			capturedWsHandlers?.onUpdate([
+				{ role: "user", content: "I am a user message" },
+				{ role: "assistant", content: "I am a response" },
+			]);
+		});
+
+		// findByText returns the styled div itself for user messages (text is direct child)
+		const userStyledDiv = await screen.findByText("I am a user message");
+		const styleAttr = userStyledDiv.getAttribute("style") ?? "";
+		// User messages retain bubble: distinct background, padding, rounded corners
+		expect(styleAttr).toContain("padding: 10px 16px");
+		expect(styleAttr).toContain("border-radius: 20px");
+		expect(styleAttr).not.toContain("background: transparent");
+	});
+});
diff --git a/frontend/src/components/Chat.tsx b/frontend/src/components/Chat.tsx
index 3a385da..c9ea9b4 100644
--- a/frontend/src/components/Chat.tsx
+++ b/frontend/src/components/Chat.tsx
@@ -761,45 +761,49 @@ export function Chat({ projectPath, onCloseProject }: ChatProps) {
 								>
 									<div
 										style={{
-											maxWidth: "85%",
-											padding: "16px 20px",
-											borderRadius: "12px",
-											background: "#262626",
-											color: "#fff",
-											border: "1px solid #404040",
-											fontFamily: "system-ui, -apple-system, sans-serif",
-											fontSize: "0.95rem",
-											fontWeight: 400,
-											whiteSpace: "pre-wrap",
-											lineHeight: 1.6,
+											maxWidth: "100%",
+											padding: "0",
+											borderRadius: "0",
+											background: "transparent",
+											color: "#ececec",
+											border: "none",
+											fontFamily: "inherit",
+											fontSize: "1em",
+											fontWeight: "500",
+											whiteSpace: "normal",
+											lineHeight: "1.6",
 										}}
 									>
-										<Markdown
-											components={{
-												// eslint-disable-next-line @typescript-eslint/no-explicit-any
-												// biome-ignore lint/suspicious/noExplicitAny: react-markdown requires any for component props
-												code: ({ className, children, ...props }: any) => {
-													const match = /language-(\w+)/.exec(className || "");
-													const isInline = !className;
-													return !isInline && match ? (
-														<SyntaxHighlighter
-															// biome-ignore lint/suspicious/noExplicitAny: oneDark style types are incompatible
-															style={oneDark as any}
-															language={match[1]}
-															PreTag="div"
-														>
-															{String(children).replace(/\n$/, "")}
-														</SyntaxHighlighter>
-													) : (
-														<code className={className} {...props}>
-															{children}
-														</code>
-													);
-												},
-											}}
-										>
-											{streamingContent}
-										</Markdown>
+										<div className="markdown-body">
+											<Markdown
+												components={{
+													// eslint-disable-next-line @typescript-eslint/no-explicit-any
+													// biome-ignore lint/suspicious/noExplicitAny: react-markdown requires any for component props
+													code: ({ className, children, ...props }: any) => {
+														const match = /language-(\w+)/.exec(
+															className || "",
+														);
+														const isInline = !className;
+														return !isInline && match ? (
+															<SyntaxHighlighter
+																// biome-ignore lint/suspicious/noExplicitAny: oneDark style types are incompatible
+																style={oneDark as any}
+																language={match[1]}
+																PreTag="div"
+															>
+																{String(children).replace(/\n$/, "")}
+															</SyntaxHighlighter>
+														) : (
+															<code className={className} {...props}>
+																{children}
+															</code>
+														);
+													},
+												}}
+											>
+												{streamingContent}
+											</Markdown>
+										</div>
 									</div>
 								</div>
 							)}