diff --git a/server/index.js b/server/index.js
index 2f19dcd..719e1c3 100755
--- a/server/index.js
+++ b/server/index.js
@@ -70,7 +70,7 @@ import mcpUtilsRoutes from './routes/mcp-utils.js';
 import commandsRoutes from './routes/commands.js';
 import settingsRoutes from './routes/settings.js';
 import agentRoutes from './routes/agent.js';
-import projectsRoutes from './routes/projects.js';
+import projectsRoutes, { FORBIDDEN_PATHS } from './routes/projects.js';
 import cliAuthRoutes from './routes/cli-auth.js';
 import userRoutes from './routes/user.js';
 import codexRoutes from './routes/codex.js';
@@ -550,6 +550,55 @@ app.get('/api/browse-filesystem', authenticateToken, async (req, res) => {
     }
 });
 
+app.post('/api/create-folder', authenticateToken, async (req, res) => {
+    try {
+        const { path: folderPath } = req.body;
+        if (!folderPath) {
+            return res.status(400).json({ error: 'Path is required' });
+        }
+        const homeDir = os.homedir();
+        const targetPath = path.resolve(folderPath.replace('~', homeDir));
+        const normalizedPath = path.normalize(targetPath);
+        const comparePath = normalizedPath.toLowerCase();
+        const forbiddenLower = FORBIDDEN_PATHS.map(p => p.toLowerCase());
+        if (forbiddenLower.includes(comparePath) || comparePath === '/') {
+            return res.status(403).json({ error: 'Cannot create folders in system directories' });
+        }
+        for (const forbidden of forbiddenLower) {
+            if (comparePath.startsWith(forbidden + path.sep)) {
+                if (forbidden === '/var' && (comparePath.startsWith('/var/tmp') || comparePath.startsWith('/var/folders'))) {
+                    continue;
+                }
+                return res.status(403).json({ error: `Cannot create folders in system directory: ${forbidden}` });
+            }
+        }
+        const parentDir = path.dirname(targetPath);
+        try {
+            await fs.promises.access(parentDir);
+        } catch (err) {
+            return res.status(404).json({ error: 'Parent directory does not exist' });
+        }
+        try {
+            await fs.promises.access(targetPath);
+            return res.status(409).json({ error: 'Folder already exists' });
+        } catch (err) {
+            // Folder doesn't exist, which is what we want
+        }
+        try {
+            await fs.promises.mkdir(targetPath, { recursive: false });
+            res.json({ success: true, path: targetPath });
+        } catch (mkdirError) {
+            if (mkdirError.code === 'EEXIST') {
+                return res.status(409).json({ error: 'Folder already exists' });
+            }
+            throw mkdirError;
+        }
+    } catch (error) {
+        console.error('Error creating folder:', error);
+        res.status(500).json({ error: 'Failed to create folder' });
+    }
+});
+
 // Read file content endpoint
 app.get('/api/projects/:projectName/file', authenticateToken, async (req, res) => {
     try {
diff --git a/server/middleware/auth.js b/server/middleware/auth.js
index b9ff24f..9231e4e 100644
--- a/server/middleware/auth.js
+++ b/server/middleware/auth.js
@@ -37,7 +37,12 @@ const authenticateToken = async (req, res, next) => {
 
   // Normal OSS JWT validation
   const authHeader = req.headers['authorization'];
-  const token = authHeader && authHeader.split(' ')[1]; // Bearer TOKEN
+  let token = authHeader && authHeader.split(' ')[1]; // Bearer TOKEN
+
+  // Also check query param for SSE endpoints (EventSource can't set headers)
+  if (!token && req.query.token) {
+    token = req.query.token;
+  }
 
   if (!token) {
     return res.status(401).json({ error: 'Access denied. No token provided.' });
diff --git a/server/projects.js b/server/projects.js
index b4606f8..475b323 100755
--- a/server/projects.js
+++ b/server/projects.js
@@ -1095,7 +1095,7 @@ async function addProjectManually(projectPath, displayName = null) {
   }
 
   // Generate project name (encode path for use as directory name)
-  const projectName = absolutePath.replace(/\//g, '-');
+  const projectName = absolutePath.replace(/[\\/:\s~_]/g, '-');
 
   // Check if project already exists in config
   const config = await loadProjectConfig();
diff --git a/server/routes/projects.js b/server/routes/projects.js
index 042de51..7db0537 100644
--- a/server/routes/projects.js
+++ b/server/routes/projects.js
@@ -7,11 +7,17 @@ import { addProjectManually } from '../projects.js';
 
 const router = express.Router();
 
+function sanitizeGitError(message, token) {
+  if (!message || !token) return message;
+  return message.replace(new RegExp(token.replace(/[.*+?^${}()|[\]\\]/g, '\\$&'), 'g'), '***');
+}
+
 // Configure allowed workspace root (defaults to user's home directory)
 const WORKSPACES_ROOT = process.env.WORKSPACES_ROOT || os.homedir();
 
 // System-critical paths that should never be used as workspace directories
-const FORBIDDEN_PATHS = [
+export const FORBIDDEN_PATHS = [
+  // Unix
   '/',
   '/etc',
   '/bin',
@@ -27,7 +33,14 @@ const FORBIDDEN_PATHS = [
   '/lib64',
   '/opt',
   '/tmp',
-  '/run'
+  '/run',
+  // Windows
+  'C:\\Windows',
+  'C:\\Program Files',
+  'C:\\Program Files (x86)',
+  'C:\\ProgramData',
+  'C:\\System Volume Information',
+  'C:\\$Recycle.Bin'
 ];
 
 /**
@@ -212,20 +225,7 @@ router.post('/create-workspace', async (req, res) => {
 
     // Handle new workspace creation
     if (workspaceType === 'new') {
-      // Check if path already exists
-      try {
-        await fs.access(absolutePath);
-        return res.status(400).json({
-          error: 'Path already exists. Please choose a different path or use "existing workspace" option.'
-        });
-      } catch (error) {
-        if (error.code !== 'ENOENT') {
-          throw error;
-        }
-        // Path doesn't exist - good, we can create it
-      }
-
-      // Create the directory
+      // Create the directory if it doesn't exist
       await fs.mkdir(absolutePath, { recursive: true });
 
       // If GitHub URL is provided, clone the repository
@@ -246,30 +246,55 @@ router.post('/create-workspace', async (req, res) => {
           githubToken = newGithubToken;
         }
 
-        // Clone the repository
+        // Extract repo name from URL for the clone destination
+        const normalizedUrl = githubUrl.replace(/\/+$/, '').replace(/\.git$/, '');
+        const repoName = normalizedUrl.split('/').pop() || 'repository';
+        const clonePath = path.join(absolutePath, repoName);
+
+        // Check if clone destination already exists to prevent data loss
         try {
-          await cloneGitHubRepository(githubUrl, absolutePath, githubToken);
+          await fs.access(clonePath);
+          return res.status(409).json({
+            error: 'Directory already exists',
+            details: `The destination path "${clonePath}" already exists. Please choose a different location or remove the existing directory.`
+          });
+        } catch (err) {
+          // Directory doesn't exist, which is what we want
+        }
+
+        // Clone the repository into a subfolder
+        try {
+          await cloneGitHubRepository(githubUrl, clonePath, githubToken);
         } catch (error) {
-          // Clean up created directory on failure
+          // Only clean up if clone created partial data (check if dir exists and is empty or partial)
           try {
-            await fs.rm(absolutePath, { recursive: true, force: true });
+            const stats = await fs.stat(clonePath);
+            if (stats.isDirectory()) {
+              await fs.rm(clonePath, { recursive: true, force: true });
+            }
           } catch (cleanupError) {
-            console.error('Failed to clean up directory after clone failure:', cleanupError);
-            // Continue to throw original error
+            // Directory doesn't exist or cleanup failed - ignore
           }
           throw new Error(`Failed to clone repository: ${error.message}`);
         }
+
+        // Add the cloned repo path to the project list
+        const project = await addProjectManually(clonePath);
+
+        return res.json({
+          success: true,
+          project,
+          message: 'New workspace created and repository cloned successfully'
+        });
       }
 
-      // Add the new workspace to the project list
+      // Add the new workspace to the project list (no clone)
       const project = await addProjectManually(absolutePath);
 
       return res.json({
         success: true,
         project,
-        message: githubUrl
-          ? 'New workspace created and repository cloned successfully'
-          : 'New workspace created successfully'
+        message: 'New workspace created successfully'
       });
     }
 
@@ -305,31 +330,179 @@ async function getGithubTokenById(tokenId, userId) {
   return null;
 }
 
+/**
+ * Clone repository with progress streaming (SSE)
+ * GET /api/projects/clone-progress
+ */
+router.get('/clone-progress', async (req, res) => {
+  const { path: workspacePath, githubUrl, githubTokenId, newGithubToken } = req.query;
+
+  res.setHeader('Content-Type', 'text/event-stream');
+  res.setHeader('Cache-Control', 'no-cache');
+  res.setHeader('Connection', 'keep-alive');
+  res.flushHeaders();
+
+  const sendEvent = (type, data) => {
+    res.write(`data: ${JSON.stringify({ type, ...data })}\n\n`);
+  };
+
+  try {
+    if (!workspacePath || !githubUrl) {
+      sendEvent('error', { message: 'workspacePath and githubUrl are required' });
+      res.end();
+      return;
+    }
+
+    const validation = await validateWorkspacePath(workspacePath);
+    if (!validation.valid) {
+      sendEvent('error', { message: validation.error });
+      res.end();
+      return;
+    }
+
+    const absolutePath = validation.resolvedPath;
+
+    await fs.mkdir(absolutePath, { recursive: true });
+
+    let githubToken = null;
+    if (githubTokenId) {
+      const token = await getGithubTokenById(parseInt(githubTokenId), req.user.id);
+      if (!token) {
+        await fs.rm(absolutePath, { recursive: true, force: true });
+        sendEvent('error', { message: 'GitHub token not found' });
+        res.end();
+        return;
+      }
+      githubToken = token.github_token;
+    } else if (newGithubToken) {
+      githubToken = newGithubToken;
+    }
+
+    const normalizedUrl = githubUrl.replace(/\/+$/, '').replace(/\.git$/, '');
+    const repoName = normalizedUrl.split('/').pop() || 'repository';
+    const clonePath = path.join(absolutePath, repoName);
+
+    // Check if clone destination already exists to prevent data loss
+    try {
+      await fs.access(clonePath);
+      sendEvent('error', { message: `Directory "${repoName}" already exists. Please choose a different location or remove the existing directory.` });
+      res.end();
+      return;
+    } catch (err) {
+      // Directory doesn't exist, which is what we want
+    }
+
+    let cloneUrl = githubUrl;
+    if (githubToken) {
+      try {
+        const url = new URL(githubUrl);
+        url.username = githubToken;
+        url.password = '';
+        cloneUrl = url.toString();
+      } catch (error) {
+        // SSH URL or invalid - use as-is
+      }
+    }
+
+    sendEvent('progress', { message: `Cloning into '${repoName}'...` });
+
+    const gitProcess = spawn('git', ['clone', '--progress', cloneUrl, clonePath], {
+      stdio: ['ignore', 'pipe', 'pipe'],
+      env: {
+        ...process.env,
+        GIT_TERMINAL_PROMPT: '0'
+      }
+    });
+
+    let lastError = '';
+
+    gitProcess.stdout.on('data', (data) => {
+      const message = data.toString().trim();
+      if (message) {
+        sendEvent('progress', { message });
+      }
+    });
+
+    gitProcess.stderr.on('data', (data) => {
+      const message = data.toString().trim();
+      lastError = message;
+      if (message) {
+        sendEvent('progress', { message });
+      }
+    });
+
+    gitProcess.on('close', async (code) => {
+      if (code === 0) {
+        try {
+          const project = await addProjectManually(clonePath);
+          sendEvent('complete', { project, message: 'Repository cloned successfully' });
+        } catch (error) {
+          sendEvent('error', { message: `Clone succeeded but failed to add project: ${error.message}` });
+        }
+      } else {
+        const sanitizedError = sanitizeGitError(lastError, githubToken);
+        let errorMessage = 'Git clone failed';
+        if (lastError.includes('Authentication failed') || lastError.includes('could not read Username')) {
+          errorMessage = 'Authentication failed. Please check your credentials.';
+        } else if (lastError.includes('Repository not found')) {
+          errorMessage = 'Repository not found. Please check the URL and ensure you have access.';
+        } else if (lastError.includes('already exists')) {
+          errorMessage = 'Directory already exists';
+        } else if (sanitizedError) {
+          errorMessage = sanitizedError;
+        }
+        try {
+          await fs.rm(clonePath, { recursive: true, force: true });
+        } catch (cleanupError) {
+          console.error('Failed to clean up after clone failure:', sanitizeGitError(cleanupError.message, githubToken));
+        }
+        sendEvent('error', { message: errorMessage });
+      }
+      res.end();
+    });
+
+    gitProcess.on('error', (error) => {
+      if (error.code === 'ENOENT') {
+        sendEvent('error', { message: 'Git is not installed or not in PATH' });
+      } else {
+        sendEvent('error', { message: error.message });
+      }
+      res.end();
+    });
+
+    req.on('close', () => {
+      gitProcess.kill();
+    });
+
+  } catch (error) {
+    sendEvent('error', { message: error.message });
+    res.end();
+  }
+});
+
 /**
  * Helper function to clone a GitHub repository
  */
 function cloneGitHubRepository(githubUrl, destinationPath, githubToken = null) {
   return new Promise((resolve, reject) => {
-    // Parse GitHub URL and inject token if provided
     let cloneUrl = githubUrl;
 
     if (githubToken) {
       try {
         const url = new URL(githubUrl);
-        // Format: https://TOKEN@github.com/user/repo.git
         url.username = githubToken;
         url.password = '';
         cloneUrl = url.toString();
       } catch (error) {
-        return reject(new Error('Invalid GitHub URL format'));
+        // SSH URL - use as-is
       }
     }
 
-    const gitProcess = spawn('git', ['clone', cloneUrl, destinationPath], {
+    const gitProcess = spawn('git', ['clone', '--progress', cloneUrl, destinationPath], {
       stdio: ['ignore', 'pipe', 'pipe'],
       env: {
         ...process.env,
-        GIT_TERMINAL_PROMPT: '0' // Disable git password prompts
+        GIT_TERMINAL_PROMPT: '0'
       }
     });
 
@@ -348,7 +521,6 @@ function cloneGitHubRepository(githubUrl, destinationPath, githubToken = null) {
       if (code === 0) {
         resolve({ stdout, stderr });
       } else {
-        // Parse git error messages to provide helpful feedback
         let errorMessage = 'Git clone failed';
 
         if (stderr.includes('Authentication failed') || stderr.includes('could not read Username')) {
diff --git a/src/components/ProjectCreationWizard.jsx b/src/components/ProjectCreationWizard.jsx
index 2109e56..dd6ab72 100644
--- a/src/components/ProjectCreationWizard.jsx
+++ b/src/components/ProjectCreationWizard.jsx
@@ -1,5 +1,5 @@
 import React, { useState, useEffect } from 'react';
-import { X, FolderPlus, GitBranch, Key, ChevronRight, ChevronLeft, Check, Loader2, AlertCircle, FolderOpen, Eye, EyeOff } from 'lucide-react';
+import { X, FolderPlus, GitBranch, Key, ChevronRight, ChevronLeft, Check, Loader2, AlertCircle, FolderOpen, Eye, EyeOff, Plus } from 'lucide-react';
 import { Button } from './ui/button';
 import { Input } from './ui/input';
 import { api } from '../utils/api';
@@ -30,6 +30,10 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
   const [browserFolders, setBrowserFolders] = useState([]);
   const [loadingFolders, setLoadingFolders] = useState(false);
   const [showHiddenFolders, setShowHiddenFolders] = useState(false);
+  const [showNewFolderInput, setShowNewFolderInput] = useState(false);
+  const [newFolderName, setNewFolderName] = useState('');
+  const [creatingFolder, setCreatingFolder] = useState(false);
+  const [cloneProgress, setCloneProgress] = useState('');
 
   // Load available GitHub tokens when needed
   useEffect(() => {
@@ -78,9 +82,10 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
       const data = await response.json();
 
       if (data.suggestions) {
-        // Filter suggestions based on the input
+        // Filter suggestions based on the input, excluding exact match
         const filtered = data.suggestions.filter(s =>
-          s.path.toLowerCase().startsWith(inputPath.toLowerCase())
+          s.path.toLowerCase().startsWith(inputPath.toLowerCase()) &&
+          s.path.toLowerCase() !== inputPath.toLowerCase()
         );
         setPathSuggestions(filtered.slice(0, 5));
         setShowPathDropdown(filtered.length > 0);
@@ -118,24 +123,62 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
   const handleCreate = async () => {
     setIsCreating(true);
     setError(null);
+    setCloneProgress('');
 
     try {
+      if (workspaceType === 'new' && githubUrl) {
+        const params = new URLSearchParams({
+          path: workspacePath.trim(),
+          githubUrl: githubUrl.trim(),
+        });
+
+        if (tokenMode === 'stored' && selectedGithubToken) {
+          params.append('githubTokenId', selectedGithubToken);
+        } else if (tokenMode === 'new' && newGithubToken) {
+          params.append('newGithubToken', newGithubToken.trim());
+        }
+
+        const token = localStorage.getItem('auth-token');
+        const url = `/api/projects/clone-progress?${params}${token ? `&token=${token}` : ''}`;
+
+        await new Promise((resolve, reject) => {
+          const eventSource = new EventSource(url);
+
+          eventSource.onmessage = (event) => {
+            try {
+              const data = JSON.parse(event.data);
+
+              if (data.type === 'progress') {
+                setCloneProgress(data.message);
+              } else if (data.type === 'complete') {
+                eventSource.close();
+                if (onProjectCreated) {
+                  onProjectCreated(data.project);
+                }
+                onClose();
+                resolve();
+              } else if (data.type === 'error') {
+                eventSource.close();
+                reject(new Error(data.message));
+              }
+            } catch (e) {
+              console.error('Error parsing SSE event:', e);
+            }
+          };
+
+          eventSource.onerror = () => {
+            eventSource.close();
+            reject(new Error('Connection lost during clone'));
+          };
+        });
+        return;
+      }
+
       const payload = {
         workspaceType,
         path: workspacePath.trim(),
       };
 
-      // Add GitHub info if creating new workspace with GitHub URL
-      if (workspaceType === 'new' && githubUrl) {
-        payload.githubUrl = githubUrl.trim();
-
-        if (tokenMode === 'stored' && selectedGithubToken) {
-          payload.githubTokenId = parseInt(selectedGithubToken);
-        } else if (tokenMode === 'new' && newGithubToken) {
-          payload.newGithubToken = newGithubToken.trim();
-        }
-      }
-
       const response = await api.createWorkspace(payload);
       const data = await response.json();
 
@@ -143,7 +186,6 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
         throw new Error(data.error || t('projectWizard.errors.failedToCreate'));
       }
 
-      // Success!
       if (onProjectCreated) {
         onProjectCreated(data.project);
       }
@@ -170,9 +212,9 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
   const loadBrowserFolders = async (path) => {
     try {
       setLoadingFolders(true);
-      setBrowserCurrentPath(path);
       const response = await api.browseFilesystem(path);
       const data = await response.json();
+      setBrowserCurrentPath(data.path || path);
       setBrowserFolders(data.suggestions || []);
     } catch (error) {
       console.error('Error loading folders:', error);
@@ -193,6 +235,29 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
     await loadBrowserFolders(folderPath);
   };
 
+  const createNewFolder = async () => {
+    if (!newFolderName.trim()) return;
+    setCreatingFolder(true);
+    setError(null);
+    try {
+      const separator = browserCurrentPath.includes('\\') ? '\\' : '/';
+      const folderPath = `${browserCurrentPath}${separator}${newFolderName.trim()}`;
+      const response = await api.createFolder(folderPath);
+      const data = await response.json();
+      if (!response.ok) {
+        throw new Error(data.error || t('projectWizard.errors.failedToCreateFolder', 'Failed to create folder'));
+      }
+      setNewFolderName('');
+      setShowNewFolderInput(false);
+      await loadBrowserFolders(data.path || folderPath);
+    } catch (error) {
+      console.error('Error creating folder:', error);
+      setError(error.message || t('projectWizard.errors.failedToCreateFolder', 'Failed to create folder'));
+    } finally {
+      setCreatingFolder(false);
+    }
+  };
+
   return (
     <div className="fixed top-0 left-0 right-0 bottom-0 bg-black/50 backdrop-blur-sm flex items-center justify-center z-[60] p-0 sm:p-4">
       <div className="bg-white dark:bg-gray-800 rounded-none sm:rounded-lg shadow-xl w-full h-full sm:h-auto sm:max-w-2xl border-0 sm:border border-gray-200 dark:border-gray-700 overflow-y-auto">
@@ -388,8 +453,8 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
                     </p>
                   </div>
 
-                  {/* GitHub Token (only if GitHub URL is provided) */}
-                  {githubUrl && (
+                  {/* GitHub Token (only for HTTPS URLs - SSH uses SSH keys) */}
+                  {githubUrl && !githubUrl.startsWith('git@') && !githubUrl.startsWith('ssh://') && (
                     <div className="bg-gray-50 dark:bg-gray-900/50 rounded-lg p-4 border border-gray-200 dark:border-gray-700">
                       <div className="flex items-start gap-3 mb-4">
                         <Key className="w-5 h-5 text-gray-600 dark:text-gray-400 flex-shrink-0 mt-0.5" />
@@ -551,6 +616,8 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
                             ? `${t('projectWizard.step3.usingStoredToken')} ${availableTokens.find(t => t.id.toString() === selectedGithubToken)?.credential_name || 'Unknown'}`
                             : tokenMode === 'new' && newGithubToken
                             ? t('projectWizard.step3.usingProvidedToken')
+                            : (githubUrl.startsWith('git@') || githubUrl.startsWith('ssh://'))
+                            ? t('projectWizard.step3.sshKey', 'SSH Key')
                             : t('projectWizard.step3.noAuthentication')}
                         </span>
                       </div>
@@ -560,13 +627,22 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
               </div>
 
               <div className="bg-blue-50 dark:bg-blue-900/20 rounded-lg p-4 border border-blue-200 dark:border-blue-800">
-                <p className="text-sm text-blue-800 dark:text-blue-200">
-                  {workspaceType === 'existing'
-                    ? t('projectWizard.step3.existingInfo')
-                    : githubUrl
-                    ? t('projectWizard.step3.newWithClone')
-                    : t('projectWizard.step3.newEmpty')}
-                </p>
+                {isCreating && cloneProgress ? (
+                  <div className="space-y-2">
+                    <p className="text-sm font-medium text-blue-800 dark:text-blue-200">{t('projectWizard.step3.cloningRepository', 'Cloning repository...')}</p>
+                    <code className="block text-xs font-mono text-blue-700 dark:text-blue-300 whitespace-pre-wrap break-all">
+                      {cloneProgress}
+                    </code>
+                  </div>
+                ) : (
+                  <p className="text-sm text-blue-800 dark:text-blue-200">
+                    {workspaceType === 'existing'
+                      ? t('projectWizard.step3.existingInfo')
+                      : githubUrl
+                      ? t('projectWizard.step3.newWithClone')
+                      : t('projectWizard.step3.newEmpty')}
+                  </p>
+                )}
               </div>
             </div>
           )}
@@ -596,7 +672,7 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
             {isCreating ? (
               <>
                 <Loader2 className="w-4 h-4 mr-2 animate-spin" />
-                {t('projectWizard.buttons.creating')}
+                {githubUrl ? t('projectWizard.buttons.cloning', 'Cloning...') : t('projectWizard.buttons.creating')}
               </>
             ) : step === 3 ? (
               <>
@@ -639,6 +715,17 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
                 >
                   {showHiddenFolders ? <Eye className="w-5 h-5" /> : <EyeOff className="w-5 h-5" />}
                 </button>
+                <button
+                  onClick={() => setShowNewFolderInput(!showNewFolderInput)}
+                  className={`p-2 rounded-md transition-colors ${
+                    showNewFolderInput
+                      ? 'text-blue-600 dark:text-blue-400 bg-blue-50 dark:bg-blue-900/30'
+                      : 'text-gray-400 hover:text-gray-600 dark:hover:text-gray-300 hover:bg-gray-100 dark:hover:bg-gray-700'
+                  }`}
+                  title="Create new folder"
+                >
+                  <Plus className="w-5 h-5" />
+                </button>
                 <button
                   onClick={() => setShowFolderBrowser(false)}
                   className="p-2 text-gray-400 hover:text-gray-600 dark:hover:text-gray-300 rounded-md hover:bg-gray-100 dark:hover:bg-gray-700"
@@ -648,23 +735,67 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
               </div>
             </div>
 
+            {/* New Folder Input */}
+            {showNewFolderInput && (
+              <div className="px-4 py-3 border-b border-gray-200 dark:border-gray-700 bg-blue-50 dark:bg-blue-900/20">
+                <div className="flex items-center gap-2">
+                  <Input
+                    type="text"
+                    value={newFolderName}
+                    onChange={(e) => setNewFolderName(e.target.value)}
+                    placeholder="New folder name"
+                    className="flex-1"
+                    onKeyDown={(e) => {
+                      if (e.key === 'Enter') createNewFolder();
+                      if (e.key === 'Escape') {
+                        setShowNewFolderInput(false);
+                        setNewFolderName('');
+                      }
+                    }}
+                    autoFocus
+                  />
+                  <Button
+                    size="sm"
+                    onClick={createNewFolder}
+                    disabled={!newFolderName.trim() || creatingFolder}
+                  >
+                    {creatingFolder ? <Loader2 className="w-4 h-4 animate-spin" /> : 'Create'}
+                  </Button>
+                  <Button
+                    size="sm"
+                    variant="ghost"
+                    onClick={() => {
+                      setShowNewFolderInput(false);
+                      setNewFolderName('');
+                    }}
+                  >
+                    Cancel
+                  </Button>
+                </div>
+              </div>
+            )}
+
             {/* Folder List */}
             <div className="flex-1 overflow-y-auto p-4">
               {loadingFolders ? (
                 <div className="flex items-center justify-center py-8">
                   <Loader2 className="w-6 h-6 animate-spin text-gray-400" />
                 </div>
-              ) : browserFolders.length === 0 ? (
-                <div className="text-center py-8 text-gray-500 dark:text-gray-400">
-                  No folders found
-                </div>
               ) : (
                 <div className="space-y-1">
-                  {/* Parent Directory */}
-                  {browserCurrentPath !== '~' && browserCurrentPath !== '/' && (
+                  {/* Parent Directory - check for Windows root (e.g., C:\) and Unix root */}
+                  {browserCurrentPath !== '~' && browserCurrentPath !== '/' && !/^[A-Za-z]:\\?$/.test(browserCurrentPath) && (
                     <button
                       onClick={() => {
-                        const parentPath = browserCurrentPath.substring(0, browserCurrentPath.lastIndexOf('/')) || '/';
+                        const lastSlash = Math.max(browserCurrentPath.lastIndexOf('/'), browserCurrentPath.lastIndexOf('\\'));
+                        let parentPath;
+                        if (lastSlash <= 0) {
+                          parentPath = '/';
+                        } else if (lastSlash === 2 && /^[A-Za-z]:/.test(browserCurrentPath)) {
+                          parentPath = browserCurrentPath.substring(0, 3);
+                        } else {
+                          parentPath = browserCurrentPath.substring(0, lastSlash);
+                        }
                         navigateToFolder(parentPath);
                       }}
                       className="w-full px-4 py-3 text-left hover:bg-gray-100 dark:hover:bg-gray-700 rounded-lg flex items-center gap-3"
@@ -675,28 +806,34 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
                   )}
 
                   {/* Folders */}
-                  {browserFolders
-                    .filter(folder => showHiddenFolders || !folder.name.startsWith('.'))
-                    .sort((a, b) => a.name.toLowerCase().localeCompare(b.name.toLowerCase()))
-                    .map((folder, index) => (
-                    <div key={index} className="flex items-center gap-2">
-                      <button
-                        onClick={() => navigateToFolder(folder.path)}
-                        className="flex-1 px-4 py-3 text-left hover:bg-gray-100 dark:hover:bg-gray-700 rounded-lg flex items-center gap-3"
-                      >
-                        <FolderPlus className="w-5 h-5 text-blue-500" />
-                        <span className="font-medium text-gray-900 dark:text-white">{folder.name}</span>
-                      </button>
-                      <Button
-                        variant="ghost"
-                        size="sm"
-                        onClick={() => selectFolder(folder.path, true)}
-                        className="text-xs px-3"
-                      >
-                        Select
-                      </Button>
+                  {browserFolders.length === 0 ? (
+                    <div className="text-center py-8 text-gray-500 dark:text-gray-400">
+                      No subfolders found
                     </div>
-                  ))}
+                  ) : (
+                    browserFolders
+                      .filter(folder => showHiddenFolders || !folder.name.startsWith('.'))
+                      .sort((a, b) => a.name.toLowerCase().localeCompare(b.name.toLowerCase()))
+                      .map((folder, index) => (
+                      <div key={index} className="flex items-center gap-2">
+                        <button
+                          onClick={() => navigateToFolder(folder.path)}
+                          className="flex-1 px-4 py-3 text-left hover:bg-gray-100 dark:hover:bg-gray-700 rounded-lg flex items-center gap-3"
+                        >
+                          <FolderPlus className="w-5 h-5 text-blue-500" />
+                          <span className="font-medium text-gray-900 dark:text-white">{folder.name}</span>
+                        </button>
+                        <Button
+                          variant="ghost"
+                          size="sm"
+                          onClick={() => selectFolder(folder.path, workspaceType === 'existing')}
+                          className="text-xs px-3"
+                        >
+                          Select
+                        </Button>
+                      </div>
+                    ))
+                  )}
                 </div>
               )}
             </div>
@@ -712,13 +849,17 @@ const ProjectCreationWizard = ({ onClose, onProjectCreated }) => {
               <div className="flex items-center justify-end gap-2 p-4">
                 <Button
                   variant="outline"
-                  onClick={() => setShowFolderBrowser(false)}
+                  onClick={() => {
+                    setShowFolderBrowser(false);
+                    setShowNewFolderInput(false);
+                    setNewFolderName('');
+                  }}
                 >
                   Cancel
                 </Button>
                 <Button
                   variant="outline"
-                  onClick={() => selectFolder(browserCurrentPath, true)}
+                  onClick={() => selectFolder(browserCurrentPath, workspaceType === 'existing')}
                 >
                   Use this folder
                 </Button>
diff --git a/src/i18n/locales/en/common.json b/src/i18n/locales/en/common.json
index bb2d6bc..18f2b80 100644
--- a/src/i18n/locales/en/common.json
+++ b/src/i18n/locales/en/common.json
@@ -136,14 +136,14 @@
     },
     "step2": {
       "existingPath": "Workspace Path",
-      "newPath": "Where should the workspace be created?",
+      "newPath": "Workspace Path",
       "existingPlaceholder": "/path/to/existing/workspace",
       "newPlaceholder": "/path/to/new/workspace",
       "existingHelp": "Full path to your existing workspace directory",
-      "newHelp": "Full path where the new workspace will be created",
+      "newHelp": "Full path to your workspace directory",
       "githubUrl": "GitHub URL (Optional)",
       "githubPlaceholder": "https://github.com/username/repository",
-      "githubHelp": "Leave empty to create an empty workspace, or provide a GitHub URL to clone",
+      "githubHelp": "Optional: provide a GitHub URL to clone a repository",
       "githubAuth": "GitHub Authentication (Optional)",
       "githubAuthHelp": "Only required for private repositories. Public repos can be cloned without authentication.",
       "loadingTokens": "Loading stored tokens...",
@@ -170,21 +170,25 @@
       "usingStoredToken": "Using stored token:",
       "usingProvidedToken": "Using provided token",
       "noAuthentication": "No authentication",
+      "sshKey": "SSH Key",
       "existingInfo": "The workspace will be added to your project list and will be available for Claude/Cursor sessions.",
-      "newWithClone": "A new workspace will be created and the repository will be cloned from GitHub.",
-      "newEmpty": "An empty workspace directory will be created at the specified path."
+      "newWithClone": "The repository will be cloned from this folder.",
+      "newEmpty": "The workspace will be added to your project list and will be available for Claude/Cursor sessions.",
+      "cloningRepository": "Cloning repository..."
     },
     "buttons": {
       "cancel": "Cancel",
       "back": "Back",
       "next": "Next",
       "createProject": "Create Project",
-      "creating": "Creating..."
+      "creating": "Creating...",
+      "cloning": "Cloning..."
     },
     "errors": {
       "selectType": "Please select whether you have an existing workspace or want to create a new one",
       "providePath": "Please provide a workspace path",
-      "failedToCreate": "Failed to create workspace"
+      "failedToCreate": "Failed to create workspace",
+      "failedToCreateFolder": "Failed to create folder"
     }
   },
   "versionUpdate": {
diff --git a/src/i18n/locales/zh-CN/common.json b/src/i18n/locales/zh-CN/common.json
index 9c66ca8..c5db190 100644
--- a/src/i18n/locales/zh-CN/common.json
+++ b/src/i18n/locales/zh-CN/common.json
@@ -136,14 +136,14 @@
     },
     "step2": {
       "existingPath": "工作区路径",
-      "newPath": "应该在哪里创建工作区？",
+      "newPath": "工作区路径",
       "existingPlaceholder": "/path/to/existing/workspace",
       "newPlaceholder": "/path/to/new/workspace",
       "existingHelp": "您现有工作区目录的完整路径",
-      "newHelp": "将创建新工作区的完整路径",
+      "newHelp": "工作区目录的完整路径",
       "githubUrl": "GitHub URL（可选）",
       "githubPlaceholder": "https://github.com/username/repository",
-      "githubHelp": "留空以创建空工作区，或提供 GitHub URL 以克隆",
+      "githubHelp": "可选：提供 GitHub URL 以克隆仓库",
       "githubAuth": "GitHub 身份验证（可选）",
       "githubAuthHelp": "仅私有仓库需要。公共仓库无需身份验证即可克隆。",
       "loadingTokens": "正在加载已保存的令牌...",
@@ -170,21 +170,25 @@
       "usingStoredToken": "使用已保存的令牌：",
       "usingProvidedToken": "使用提供的令牌",
       "noAuthentication": "无身份验证",
+      "sshKey": "SSH 密钥",
       "existingInfo": "工作区将被添加到您的项目列表中，并可用于 Claude/Cursor 会话。",
-      "newWithClone": "将创建新工作区，并从 GitHub 克隆仓库。",
-      "newEmpty": "将在指定路径创建一个空的工作区目录。"
+      "newWithClone": "仓库将从此文件夹克隆。",
+      "newEmpty": "工作区将被添加到您的项目列表中，并可用于 Claude/Cursor 会话。",
+      "cloningRepository": "正在克隆仓库..."
     },
     "buttons": {
       "cancel": "取消",
       "back": "返回",
       "next": "下一步",
       "createProject": "创建项目",
-      "creating": "创建中..."
+      "creating": "创建中...",
+      "cloning": "正在克隆..."
     },
     "errors": {
       "selectType": "请选择您已有现有工作区还是想创建新工作区",
       "providePath": "请提供工作区路径",
-      "failedToCreate": "创建工作区失败"
+      "failedToCreate": "创建工作区失败",
+      "failedToCreateFolder": "创建文件夹失败"
     }
   },
   "versionUpdate": {
diff --git a/src/utils/api.js b/src/utils/api.js
index 7f497cd..1625546 100644
--- a/src/utils/api.js
+++ b/src/utils/api.js
@@ -158,6 +158,12 @@ export const api = {
     return authenticatedFetch(`/api/browse-filesystem?${params}`);
   },
 
+  createFolder: (folderPath) =>
+    authenticatedFetch('/api/create-folder', {
+      method: 'POST',
+      body: JSON.stringify({ path: folderPath }),
+    }),
+
   // User endpoints
   user: {
     gitConfig: () => authenticatedFetch('/api/user/git-config'),