diff --git a/codebase_rag/mcp/server.py b/codebase_rag/mcp/server.py
index 9e05e36e0..f82380eb5 100644
--- a/codebase_rag/mcp/server.py
+++ b/codebase_rag/mcp/server.py
@@ -6,7 +6,6 @@
 
 import json
 import os
-import sys
 from pathlib import Path
 
 from loguru import logger
@@ -20,14 +19,54 @@
 from codebase_rag.services.llm import CypherGenerator
 
 
-def setup_logging() -> None:
-    """Configure logging to stderr for MCP stdio transport."""
+def setup_logging(enable_logging: bool = False) -> None:
+    """Configure logging for MCP stdio transport.
+
+    By default, logging is disabled to prevent token waste in LLM context.
+    Can be enabled via environment variable MCP_ENABLE_LOGGING=1 for debugging.
+
+    When enabled, logs are written to a file to avoid polluting STDIO transport.
+    The log file path can be configured via MCP_LOG_FILE environment variable.
+
+    Args:
+        enable_logging: Whether to enable logging output. Defaults to False.
+                       Can also be controlled via MCP_ENABLE_LOGGING environment variable.
+    """
     logger.remove()  # Remove default handler
-    logger.add(
-        sys.stderr,
-        level="INFO",
-        format="<green>{time:YYYY-MM-DD HH:mm:ss}</green> | <level>{level: <8}</level> | <level>{message}</level>",
+
+    # Check environment variable to override enable_logging parameter
+    env_enable = os.environ.get("MCP_ENABLE_LOGGING", "").lower() in (
+        "1",
+        "true",
+        "yes",
     )
+    should_enable = enable_logging or env_enable
+
+    if should_enable:
+        # Get log file path from environment or use default
+        log_file = os.environ.get("MCP_LOG_FILE")
+        if not log_file:
+            # Use ~/.cache/code-graph-rag/mcp.log as default
+            cache_dir = Path.home() / ".cache" / "code-graph-rag"
+            cache_dir.mkdir(parents=True, exist_ok=True)
+            log_file = str(cache_dir / "mcp.log")
+
+        # Ensure log file directory exists
+        log_path = Path(log_file)
+        log_path.parent.mkdir(parents=True, exist_ok=True)
+
+        # Add file handler - logs go to file, not STDERR/STDOUT
+        logger.add(
+            log_file,
+            level="INFO",
+            format="{time:YYYY-MM-DD HH:mm:ss} | {level: <8} | {message}",
+            colorize=False,  # Disable ANSI color codes
+            rotation="10 MB",  # Rotate when file reaches 10MB
+            retention="7 days",  # Keep logs for 7 days
+        )
+    else:
+        # Disable all logging by default for MCP mode
+        logger.disable("codebase_rag")
 
 
 def get_project_root() -> Path:
@@ -143,34 +182,45 @@ async def call_tool(name: str, arguments: dict) -> list[TextContent]:
 
         Tool handlers are dynamically resolved from the MCPToolsRegistry,
         ensuring consistency with tool definitions.
+
+        Logging is suppressed during tool execution to prevent token waste in LLM context.
         """
-        logger.info(f"[GraphCode MCP] Calling tool: {name}")
+        import io
+        from contextlib import redirect_stderr, redirect_stdout
 
         try:
             # Resolve handler from registry
             handler_info = tools.get_tool_handler(name)
             if not handler_info:
-                error_msg = f"Unknown tool: {name}"
-                logger.error(f"[GraphCode MCP] {error_msg}")
+                error_msg = "Unknown tool"
                 return [TextContent(type="text", text=f"Error: {error_msg}")]
 
             handler, returns_json = handler_info
 
-            # Call handler with unpacked arguments
-            result = await handler(**arguments)
-
-            # Format result based on output type
-            if returns_json:
-                result_text = json.dumps(result, indent=2)
-            else:
-                result_text = str(result)
-
-            return [TextContent(type="text", text=result_text)]
-
-        except Exception as e:
-            error_msg = f"Error executing tool '{name}': {str(e)}"
-            logger.error(f"[GraphCode MCP] {error_msg}", exc_info=True)
-            return [TextContent(type="text", text=f"Error: {error_msg}")]
+            # Suppress all logging output during tool execution
+            with redirect_stdout(io.StringIO()), redirect_stderr(io.StringIO()):
+                logger.disable("codebase_rag")
+                try:
+                    # Call handler with unpacked arguments
+                    result = await handler(**arguments)
+
+                    # Format result based on output type
+                    if returns_json:
+                        result_text = json.dumps(result, indent=2)
+                    else:
+                        result_text = str(result)
+
+                    return [TextContent(type="text", text=result_text)]
+                finally:
+                    logger.enable("codebase_rag")
+
+        except Exception:
+            # Fail silently without logging or printing error details
+            return [
+                TextContent(
+                    type="text", text="Error: There was an error executing the tool"
+                )
+            ]
 
     return server, ingestor