diff --git a/src/cloudShell.ts b/src/cloudShell.ts
index f72539d..22275fd 100644
--- a/src/cloudShell.ts
+++ b/src/cloudShell.ts
@@ -13,7 +13,7 @@ import { TelemetryWrapper } from "vscode-extension-telemetry-wrapper";
 import { AzureAccount, CloudShell } from "./azure-account.api";
 import { BaseShell } from "./baseShell";
 import { aciConfig, Constants, exportContainerCmd, exportTestScript } from "./constants";
-import { azFilePush, escapeFile, TerraformCommand, TestOption } from "./shared";
+import { azFileDelete, azFilePush, escapeFile, TerraformCommand, TestOption } from "./shared";
 import { terraformChannel } from "./terraformChannel";
 import { getStorageAccountforCloudShell, IStorageAccount } from "./utils/cloudShellUtils";
 import * as settingUtils from "./utils/settingUtils";
@@ -47,6 +47,32 @@ export class AzureCloudShell extends BaseShell {
         }
     }
 
+    public async deleteFiles(files: vscode.Uri[]): Promise<void> {
+        const RETRY_TIMES = 3;
+
+        if (!await this.connectedToCloudShell()) {
+            terraformChannel.appendLine(`cloud shell can not be opened, file deleting operation is not synced`);
+            return;
+        }
+
+        for (const file of files.map((a) => a.fsPath)) {
+            for (let i = 0; i < RETRY_TIMES; i++) {
+                try {
+                    terraformChannel.appendLine(`Deleting file ${file} from cloud shell`);
+                    await azFileDelete(
+                        vscode.workspace.getWorkspaceFolder(vscode.Uri.file(file)).name,
+                        this.storageAccountName,
+                        this.storageAccountKey,
+                        this.fileShareName,
+                        file);
+                    break;
+                } catch (err) {
+                    terraformChannel.appendLine(err);
+                }
+            }
+        }
+    }
+
     public async runTerraformTests(testType: string, workingDirectory: string) {
         if (await this.connectedToCloudShell()) {
 
diff --git a/src/extension.ts b/src/extension.ts
index 5ec6c9f..174b33f 100644
--- a/src/extension.ts
+++ b/src/extension.ts
@@ -16,9 +16,12 @@ import { checkTerraformInstalled } from "./utils/terraformUtils";
 import { DialogOption } from "./utils/uiUtils";
 import { selectWorkspaceFolder } from "./utils/workspaceUtils";
 
+let fileWatcher: vscode.FileSystemWatcher;
+
 export async function activate(ctx: vscode.ExtensionContext) {
     await checkTerraformInstalled();
     await TelemetryWrapper.initilizeFromJsonFile(ctx.asAbsolutePath("./package.json"));
+    initFileWatcher(ctx);
 
     ctx.subscriptions.push(TelemetryWrapper.registerCommand("azureTerraform.init", () => {
         terraformShellManager.getShell().runTerraformCmd(TerraformCommand.Init);
@@ -88,4 +91,18 @@ export async function activate(ctx: vscode.ExtensionContext) {
 
 export function deactivate(): void {
     terraformShellManager.dispose();
- }
+    if (fileWatcher) {
+        fileWatcher.dispose();
+    }
+}
+
+function initFileWatcher(ctx: vscode.ExtensionContext): void {
+    fileWatcher = vscode.workspace.createFileSystemWatcher(getSyncFileBlobPattern());
+    ctx.subscriptions.push(
+        fileWatcher.onDidDelete((deletedUri) => {
+            if (isTerminalSetToCloudShell()) {
+                terraformShellManager.getCloudShell().deleteFiles([deletedUri]);
+            }
+        }),
+    );
+}