diff --git a/CHANGELOG.md b/CHANGELOG.md
index 804d814..edaa37f 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -7,7 +7,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ---
 
-## [0.8.4] - 2026-02-19
+## [0.8.4...0.8.5] - 2026-02-19
     
 ### Added
 - **Visual Table Designer**: A robust, interactive UI for creating tables. Define columns, data types, constraints, and foreign keys visually without writing SQL.
@@ -21,6 +21,9 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 ### Improved
 - **Stability**: Fixed dashboard template loading issues to ensure reliable rendering on all platforms.
 
+### Fixed
+- https://github.com/dev-asterix/PgStudio/issues/56 - Resolved local AI model API implementation with support for http and custom port.
+
 ---
 
 ## [0.8.3] - 2026-02-14
diff --git a/package.json b/package.json
index ecd57f2..c7aa666 100644
--- a/package.json
+++ b/package.json
@@ -1,7 +1,7 @@
 {
   "name": "postgres-explorer",
   "displayName": "PgStudio (PostgreSQL Explorer)",
-  "version": "0.8.4",
+  "version": "0.8.5",
   "description": "PostgreSQL database explorer for VS Code with notebook support",
   "publisher": "ric-v",
   "private": false,
diff --git a/src/providers/chat/AiService.ts b/src/providers/chat/AiService.ts
index 6cd71bd..8cbd9c0 100644
--- a/src/providers/chat/AiService.ts
+++ b/src/providers/chat/AiService.ts
@@ -3,6 +3,7 @@
  */
 import * as vscode from 'vscode';
 import * as https from 'https';
+import * as http from 'http';
 import { ChatMessage } from './types';
 
 export class AiService {
@@ -212,16 +213,23 @@ Make these questions relevant to the topic discussed and progressively more adva
 
   async callDirectApi(provider: string, userMessage: string, config: vscode.WorkspaceConfiguration, customSystemPrompt?: string): Promise<{ text: string, usage?: string }> {
     const apiKey = config.get<string>('aiApiKey');
-    if (!apiKey) {
+    
+    // API key is required for most providers, but optional for custom endpoints
+    if (!apiKey && provider !== 'custom') {
       throw new Error(`API Key is required for ${provider} provider. Please configure postgresExplorer.aiApiKey.`);
     }
 
     let endpoint = '';
     let model = config.get<string>('aiModel');
     let headers: any = {
-      'Content-Type': 'application/json',
-      'Authorization': `Bearer ${apiKey}`
+      'Content-Type': 'application/json'
     };
+    
+    // Only add Authorization header if API key is provided
+    if (apiKey) {
+      headers['Authorization'] = `Bearer ${apiKey}`;
+    }
+    
     let body: any = {};
 
     const systemPrompt = customSystemPrompt !== undefined ? customSystemPrompt : this.buildSystemPrompt();
@@ -311,6 +319,7 @@ Make these questions relevant to the topic discussed and progressively more adva
 
       const options: https.RequestOptions = {
         hostname: url.hostname,
+        port: url.port || (url.protocol === 'https:' ? 443 : 80),
         path: url.pathname + url.search,
         method: 'POST',
         headers: {
@@ -319,7 +328,8 @@ Make these questions relevant to the topic discussed and progressively more adva
         }
       };
 
-      const req = https.request(options, (res) => {
+      const protocol = url.protocol === 'https:' ? https : http;
+      const req = protocol.request(options, (res) => {
         let data = '';
         res.on('data', chunk => data += chunk);
         res.on('end', () => {