diff --git a/editors/code/src/installation/extension.ts b/editors/code/src/installation/extension.ts
new file mode 100644
index 0000000000..7709cd3cd3
--- /dev/null
+++ b/editors/code/src/installation/extension.ts
@@ -0,0 +1,131 @@
+import * as vscode from "vscode";
+import * as path from "path";
+import { promises as fs } from 'fs';
+
+import { vscodeReinstallExtension, vscodeReloadWindow, log, vscodeInstallExtensionFromVsix, assert, notReentrant } from "../util";
+import { Config, UpdatesChannel } from "../config";
+import { ArtifactReleaseInfo } from "./interfaces";
+import { downloadArtifactWithProgressUi } from "./downloads";
+import { fetchArtifactReleaseInfo } from "./fetch_artifact_release_info";
+
+const HEURISTIC_NIGHTLY_RELEASE_PERIOD_IN_HOURS = 25;
+
+/**
+ * Installs `stable` or latest `nightly` version or does nothing if the current
+ * extension version is what's needed according to `desiredUpdateChannel`.
+ */
+export async function ensureProperExtensionVersion(config: Config): Promise<never | void> {
+    const currentUpdChannel = config.installedExtensionUpdateChannel;
+    const desiredUpdChannel = config.updatesChannel;
+
+    if (currentUpdChannel === UpdatesChannel.Stable) {
+        // Release date is present only when we are on nightly
+        config.installedNightlyExtensionReleaseDate.set(null);
+    }
+
+    // User has built lsp server from sources, she should manage updates manually
+    if (currentUpdChannel === null) return;
+
+    if (desiredUpdChannel === UpdatesChannel.Stable) {
+        // VSCode should handle updates for stable channel
+        if (currentUpdChannel === UpdatesChannel.Stable) return;
+
+        if (!await askToDownloadProperExtensionVersion(config)) return;
+
+        await vscodeReinstallExtension(config.extensionId);
+        await vscodeReloadWindow(); // never returns
+    }
+
+    if (currentUpdChannel === UpdatesChannel.Stable) {
+        if (!await askToDownloadProperExtensionVersion(config)) return;
+
+        return await tryDownloadNightlyExtension(config);
+    }
+
+    const currentExtReleaseDate = config.installedNightlyExtensionReleaseDate.get();
+
+    assert(currentExtReleaseDate !== null, "nightly release date must've been set during installation");
+
+    const hoursSinceLastUpdate = diffInHours(currentExtReleaseDate, new Date());
+    log.debug(`Current rust-analyzer nightly was downloaded ${hoursSinceLastUpdate} hours ago`);
+
+    if (hoursSinceLastUpdate < HEURISTIC_NIGHTLY_RELEASE_PERIOD_IN_HOURS) {
+        return;
+    }
+    if (!await askToDownloadProperExtensionVersion(config, "The installed nightly version is most likely outdated. ")) {
+        return;
+    }
+
+    await tryDownloadNightlyExtension(config, releaseInfo => {
+        assert(
+            currentExtReleaseDate === config.installedNightlyExtensionReleaseDate.get(),
+            "Other active VSCode instance has reinstalled the extension"
+        );
+
+        if (releaseInfo.releaseDate === currentExtReleaseDate) {
+            vscode.window.showInformationMessage(
+                "Whoops, it appears that your nightly version is up-to-date. " +
+                "There might be some problems with the upcomming nightly release " +
+                "or you traveled too far into the future. Sorry for that 😅! "
+            );
+            return false;
+        }
+        return true;
+    });
+}
+
+async function askToDownloadProperExtensionVersion(config: Config, reason = "") {
+    if (!config.askBeforeDownload) return true;
+
+    const stableOrNightly = config.updatesChannel === UpdatesChannel.Stable ? "stable" : "latest nightly";
+
+    // In case of reentering this function and showing the same info message
+    // (e.g. after we had shown this message, the user changed the config)
+    // vscode will dismiss the already shown one (i.e. return undefined).
+    // This behaviour is what we want, but likely it is not documented
+
+    const userResponse = await vscode.window.showInformationMessage(
+        reason + `Do you want to download the ${stableOrNightly} rust-analyzer extension ` +
+        `version and reload the window now?`,
+        "Download now", "Cancel"
+    );
+    log.debug("Response: ", userResponse);
+    return userResponse === "Download now";
+}
+
+/**
+ * Shutdowns the process in case of success (i.e. reloads the window) or throws an error.
+ */
+const tryDownloadNightlyExtension = notReentrant(async function tryDownloadNightlyExtension(
+    config: Config,
+    shouldDownload: (releaseInfo: ArtifactReleaseInfo) => boolean = () => true
+): Promise<never | void> {
+    const vsixSource = config.nightlyVsixSource;
+    try {
+        const releaseInfo = await fetchArtifactReleaseInfo(vsixSource.repo, vsixSource.file, vsixSource.tag);
+
+        if (!shouldDownload(releaseInfo)) return;
+
+        await downloadArtifactWithProgressUi(releaseInfo, vsixSource.file, vsixSource.dir, "nightly extension");
+
+        const vsixPath = path.join(vsixSource.dir, vsixSource.file);
+
+        await vscodeInstallExtensionFromVsix(vsixPath)
+        await config.installedNightlyExtensionReleaseDate.set(releaseInfo.releaseDate);
+        await fs.unlink(vsixPath);
+
+        await vscodeReloadWindow(); // never returns
+    } catch (err) {
+        log.downloadError(err, "nightly extension", vsixSource.repo.name);
+    }
+});
+
+function diffInHours(a: Date, b: Date): number {
+    // Discard the time and time-zone information (to abstract from daylight saving time bugs)
+    // https://stackoverflow.com/a/15289883/9259330
+
+    const utcA = Date.UTC(a.getFullYear(), a.getMonth(), a.getDate());
+    const utcB = Date.UTC(b.getFullYear(), b.getMonth(), b.getDate());
+
+    return (utcA - utcB) / (1000 * 60 * 60);
+}