diff --git a/CHANGELOG.adoc b/CHANGELOG.adoc
index 5932a42dce..5e024a053c 100644
--- a/CHANGELOG.adoc
+++ b/CHANGELOG.adoc
@@ -115,6 +115,7 @@ Release with new features and bugfixes:
 * https://github.com/devonfw/IDEasy/issues/1788[#1788]: Add Commandlet to create links
 * https://github.com/devonfw/IDEasy/issues/797[#797]: Use system unzip on macOS to preserve symlinks in ZIP extraction
 * https://github.com/devonfw/IDEasy/issues/1723[#1723]: Add commandlet for GitHub Copilot CLI
+* https://github.com/devonfw/IDEasy/issues/1695[#1695]: Clone settings to temporary directory, analyse, and then move
 * https://github.com/devonfw/IDEasy/issues/1880[#1880]: Reinstall all plugins for IDE in force mode
 * https://github.com/devonfw/IDEasy/issues/861[#861]: Fix install of pgadmin throws IllegalStateException when the install wizard starts
 * https://github.com/devonfw/IDEasy/issues/1844[#1844]: VSCode plugin installation progress freezing
diff --git a/cli/src/main/java/com/devonfw/tools/ide/commandlet/AbstractUpdateCommandlet.java b/cli/src/main/java/com/devonfw/tools/ide/commandlet/AbstractUpdateCommandlet.java
index 2874a0ef04..c8e1b0cc9a 100644
--- a/cli/src/main/java/com/devonfw/tools/ide/commandlet/AbstractUpdateCommandlet.java
+++ b/cli/src/main/java/com/devonfw/tools/ide/commandlet/AbstractUpdateCommandlet.java
@@ -12,7 +12,6 @@
 import org.slf4j.Logger;
 import org.slf4j.LoggerFactory;
 
-import com.devonfw.tools.ide.cli.CliException;
 import com.devonfw.tools.ide.context.AbstractIdeContext;
 import com.devonfw.tools.ide.context.IdeContext;
 import com.devonfw.tools.ide.context.IdeStartContextImpl;
@@ -192,7 +191,6 @@ private void updateSettingsInStep(boolean codeRepository) {
           this.context.getFileAccess().backup(settingsPath);
         }
         GitUrl gitUrl = getOrAskSettingsUrl();
-        checkProjectNameConvention(gitUrl.getProjectName());
         initializeRepository(gitUrl);
         return;
       }
@@ -210,17 +208,10 @@ private GitUrl getOrAskSettingsUrl() {
 
     String repository = this.settingsRepo.getValue();
     repository = handleDefaultRepository(repository);
-    String userPromt;
-    String defaultUrl;
-    if (isCodeRepository()) {
-      userPromt = "Code repository URL:";
-      defaultUrl = null;
-      LOG.info(MESSAGE_CODE_REPO_URL);
-    } else {
-      userPromt = "Settings URL [" + IdeContext.DEFAULT_SETTINGS_REPO_URL + "]:";
-      defaultUrl = IdeContext.DEFAULT_SETTINGS_REPO_URL;
-      LOG.info(MESSAGE_SETTINGS_REPO_URL, this.context.getSettingsPath());
-    }
+    String userPromt = "Repository URL [" + IdeContext.DEFAULT_SETTINGS_REPO_URL + "]:";
+    String defaultUrl = IdeContext.DEFAULT_SETTINGS_REPO_URL;
+    LOG.info(MESSAGE_SETTINGS_REPO_URL, this.context.getSettingsPath());
+
     GitUrl gitUrl = null;
     if (repository != null) {
       gitUrl = GitUrl.of(repository);
@@ -238,57 +229,18 @@ private GitUrl getOrAskSettingsUrl() {
 
   private String handleDefaultRepository(String repository) {
     if ("-".equals(repository)) {
-      if (isCodeRepository()) {
-        LOG.warn("'-' is found after '--code'. This is invalid.");
-        repository = null;
-      } else {
-        LOG.info("'-' was found for settings repository, the default settings repository '{}' will be used.", IdeContext.DEFAULT_SETTINGS_REPO_URL);
-        repository = IdeContext.DEFAULT_SETTINGS_REPO_URL;
-      }
+      LOG.info("'-' was found for the repository, the default settings repository '{}' will be used.", IdeContext.DEFAULT_SETTINGS_REPO_URL);
+      repository = IdeContext.DEFAULT_SETTINGS_REPO_URL;
     }
     return repository;
   }
 
-  private void checkProjectNameConvention(String projectName) {
-    boolean isSettingsRepo = projectName.contains(IdeContext.SETTINGS_REPOSITORY_KEYWORD);
-    boolean codeRepository = isCodeRepository();
-    if (isSettingsRepo == codeRepository) {
-      String warningTemplate;
-      if (codeRepository) {
-        warningTemplate = """
-            Your git URL is pointing to the project name {} that contains the keyword '{}'.
-            Therefore we assume that you did a mistake by adding the '--code' option to the ide project creation.
-            Do you really want to create the project?""";
-      } else {
-        warningTemplate = """
-            Your git URL is pointing to the project name {} that does not contain the keyword ''{}''.
-            Therefore we assume that you forgot to add the '--code' option to the ide project creation.
-            Do you really want to create the project?""";
-      }
-      this.context.askToContinue(warningTemplate, projectName, IdeContext.SETTINGS_REPOSITORY_KEYWORD);
-    }
-  }
-
   private void initializeRepository(GitUrl gitUrl) {
 
     GitContext gitContext = this.context.getGitContext();
     Path settingsPath = this.context.getSettingsPath();
     Path repoPath = settingsPath;
-    boolean codeRepository = isCodeRepository();
-    if (codeRepository) {
-      // clone the given code repository into IDE_HOME/workspaces/main
-      repoPath = context.getWorkspacePath().resolve(gitUrl.getProjectName());
-    }
     gitContext.pullOrClone(gitUrl, repoPath);
-    if (codeRepository) {
-      // check for settings folder and create symlink to IDE_HOME/settings
-      Path settingsFolder = repoPath.resolve(IdeContext.FOLDER_SETTINGS);
-      if (Files.exists(settingsFolder)) {
-        context.getFileAccess().symlink(settingsFolder, settingsPath);
-      } else {
-        throw new CliException("Invalid code repository " + gitUrl + ": missing a settings folder at " + settingsFolder);
-      }
-    }
     this.context.getGitContext().saveCurrentCommitId(settingsPath, this.context.getSettingsCommitIdPath());
   }
 
@@ -446,14 +398,4 @@ private void createStartScript(String ide, String workspace) {
     fileAccess.writeFileContent(scriptContent, scriptPath);
     fileAccess.makeExecutable(scriptPath);
   }
-
-  /**
-   * Judge if the repository is a code repository.
-   *
-   * @return true when the repository is a code repository, otherwise false.
-   */
-  protected boolean isCodeRepository() {
-    return false;
-  }
-
 }
diff --git a/cli/src/main/java/com/devonfw/tools/ide/commandlet/CreateCommandlet.java b/cli/src/main/java/com/devonfw/tools/ide/commandlet/CreateCommandlet.java
index a68d6768c5..119fbfffd7 100644
--- a/cli/src/main/java/com/devonfw/tools/ide/commandlet/CreateCommandlet.java
+++ b/cli/src/main/java/com/devonfw/tools/ide/commandlet/CreateCommandlet.java
@@ -2,15 +2,18 @@
 
 import java.nio.file.Files;
 import java.nio.file.Path;
+import java.nio.file.StandardCopyOption;
 import java.util.function.Predicate;
 
 import org.slf4j.Logger;
 import org.slf4j.LoggerFactory;
 
+import com.devonfw.tools.ide.cli.CliException;
 import com.devonfw.tools.ide.context.IdeContext;
+import com.devonfw.tools.ide.environment.EnvironmentVariables;
+import com.devonfw.tools.ide.git.GitUrl;
 import com.devonfw.tools.ide.io.FileAccess;
 import com.devonfw.tools.ide.log.IdeLogLevel;
-import com.devonfw.tools.ide.property.FlagProperty;
 import com.devonfw.tools.ide.property.StringProperty;
 import com.devonfw.tools.ide.version.IdeVersion;
 
@@ -24,9 +27,6 @@ public class CreateCommandlet extends AbstractUpdateCommandlet {
   /** {@link StringProperty} for the name of the new project */
   public final StringProperty newProject;
 
-  /** {@link FlagProperty} for creating a project with settings inside a code repository */
-  public final FlagProperty codeRepositoryFlag;
-
   /**
    * The constructor.
    *
@@ -36,7 +36,6 @@ public CreateCommandlet(IdeContext context) {
 
     super(context);
     this.newProject = add(new StringProperty("", true, "project"));
-    this.codeRepositoryFlag = add(new FlagProperty("--code"));
     add(this.settingsRepo);
   }
 
@@ -57,16 +56,24 @@ protected void doRun() {
 
     String newProjectName = this.newProject.getValue();
     Path newProjectPath = this.context.getIdeRoot().resolve(newProjectName);
+    Path tempProjectPath = this.context.getTempPath().resolve(IdeContext.FOLDER_PROJECTS).resolve(newProjectName);
+
+    if (Files.exists(tempProjectPath)) {
+      throw new CliException(
+          String.format("Temporary project directory already exists in: %s. Please delete it and try again.", tempProjectPath));
+    } else if (Files.exists(newProjectPath)) {
+      throw new CliException(
+          String.format("Project directory already exists in: %s. As the project already exists, try calling 'ide update'.",
+              newProjectPath));
+    }
 
     LOG.info("Creating new IDEasy project in {}", newProjectPath);
     if (!this.context.getFileAccess().isEmptyDir(newProjectPath)) {
       this.context.askToContinue("Directory {} already exists. Do you want to continue?", newProjectPath);
-    } else {
-      this.context.getFileAccess().mkdirs(newProjectPath);
     }
 
-    initializeProject(newProjectPath);
-    this.context.setIdeHome(newProjectPath);
+    initializeProject(tempProjectPath);
+    this.context.setIdeHome(tempProjectPath);
     super.doRun();
     this.context.getFileAccess().writeFileContent(IdeVersion.getVersionString(), newProjectPath.resolve(IdeContext.FILE_SOFTWARE_VERSION));
     IdeLogLevel.SUCCESS.log(LOG, "Successfully created new project '{}'.", newProjectName);
@@ -83,14 +90,99 @@ private void initializeProject(Path newInstancePath) {
   }
 
   @Override
-  protected boolean isCodeRepository() {
-    return this.codeRepositoryFlag.isTrue();
+  protected void updateSettings() {
+    super.updateSettings();
+    analyzeProject();
+  }
+
+  /**
+   * This method is invoked when a new porject is created. It analyzes the cloned repository to check if it is a valid IDEasy repository. The repository can
+   * either be a settings repository (with ide.properties or devon.properties on the top level) or a code repository (with a settings folder on the top level
+   * containing such a file). Otherwise, the project creation fails and an error message is logged.
+   */
+  private void analyzeProject() {
+    // Settings repository: ide.properties on top levels (or devon.properties for legacy users)
+    // Code repository: settings folder on top level with ide.properties inside (or devon.properties for legacy users)
+    String projectName = this.context.getProjectName();
+    Path actualProjectPath = this.context.getIdeRoot().resolve(projectName);
+    FileAccess fileAccess = this.context.getFileAccess();
+    Path settingsPath = this.context.getSettingsPath();
+
+    // Check whether the repository is a valid settings repository, code repository, or neither
+    if (isSettingsRepository(settingsPath)) {
+      LOG.info("The repository seems to be a settings repository based on the presence of " + EnvironmentVariables.DEFAULT_PROPERTIES + " or "
+          + EnvironmentVariables.LEGACY_PROPERTIES + " on the top level.");
+      moveProject(this.context.getIdeHome(), actualProjectPath);
+
+    } else if (isCodeRepository(settingsPath)) {
+      LOG.info(EnvironmentVariables.DEFAULT_PROPERTIES + " or " + EnvironmentVariables.LEGACY_PROPERTIES
+          + " found in settings subfolder. This indicates a code repository with a settings folder on the top level.");
+
+      String gitProjectName = GitUrl.of(this.settingsRepo.getValue(0)).getProjectName();
+      Path codeFolderPath = actualProjectPath.resolve(IdeContext.FOLDER_WORKSPACES).resolve(IdeContext.WORKSPACE_MAIN).resolve(gitProjectName);
+      // Move temp project to actual project location $IDE_ROOT/<project_name>
+      moveProject(this.context.getIdeHome(), actualProjectPath);
+
+      // Move settings fodler containing code to $IDE_ROOT/<project_name>/workspaces/main/<git_project_name>
+      moveProject(actualProjectPath.resolve(IdeContext.FOLDER_SETTINGS), codeFolderPath);
+
+      // Set IDE_HOME to new (and actual) project location
+      this.context.setIdeHome(actualProjectPath);
+
+      // Link settings folder in IDE_HOME to settings folder in code repository
+      fileAccess.symlink(codeFolderPath.resolve(IdeContext.FOLDER_SETTINGS), actualProjectPath.resolve(IdeContext.FOLDER_SETTINGS));
+
+    } else {
+      // Repository seems to be invalid. Clean up temporary location and return error
+      fileAccess.delete(this.context.getIdeHome());
+      throw new CliException("This repository does not include an " + EnvironmentVariables.DEFAULT_PROPERTIES + " or " + EnvironmentVariables.LEGACY_PROPERTIES
+          + " file at the top level or a settings folder with such a file. "
+          + "The repository does not seem to be a valid IDEasy repository. Please verify the repository and try again.");
+    }
+    // Set IDE_HOME to new (and actual) project location
+    this.context.setIdeHome(actualProjectPath);
+  }
+
+  /**
+   * Moves files of a new projectfrom the temporary location to the final project location.
+   *
+   * @param oldPath - The path of the file or directory to be moved.
+   * @param newPath - The path of the destination.
+   */
+  private void moveProject(Path oldPath, Path newPath) {
+    FileAccess fileAccess = this.context.getFileAccess();
+    try {
+      fileAccess.mkdirs(newPath);
+      fileAccess.move(oldPath, newPath, StandardCopyOption.REPLACE_EXISTING);
+    } catch (Exception e) {
+      LOG.error("Failed to move project from {} to {}. Please move it manually.", oldPath, newPath, e);
+    }
+  }
+
+  /**
+   * Checks whether te given repository is a settings repository by checking for the presence of ide.properties or devon.properties on the top level.
+   *
+   * @param repositoryPath - The path of the repository to be checked.
+   */
+  private boolean isSettingsRepository(Path repositoryPath) {
+    return Files.exists(repositoryPath.resolve(EnvironmentVariables.DEFAULT_PROPERTIES)) || Files.exists(
+        repositoryPath.resolve(EnvironmentVariables.LEGACY_PROPERTIES));
+  }
+
+  /**
+   * Checks whether te given repository is a code repository by checking for the presence of ide.properties or devon.properties within a settings folder on the
+   * top level.
+   *
+   * @param repositoryPath - The path of the repository to be checked.
+   */
+  private boolean isCodeRepository(Path repositoryPath) {
+    return isSettingsRepository(repositoryPath.resolve(IdeContext.FOLDER_SETTINGS));
   }
 
   @Override
   protected String getStepMessage() {
 
-    return "Create (clone) " + (isCodeRepository() ? "code" : "settings") + " repository";
+    return "Create (Clone) repository";
   }
 
   private void logWelcomeMessage() {
diff --git a/cli/src/main/resources/nls/Help.properties b/cli/src/main/resources/nls/Help.properties
index aacdefef89..7e934f18f1 100644
--- a/cli/src/main/resources/nls/Help.properties
+++ b/cli/src/main/resources/nls/Help.properties
@@ -176,7 +176,6 @@ cmd.yarn.detail=Yarn is a package manager and build tool for JavaScript. Detaile
 commandlets=Available commandlets:
 icd-hint=Hint: Use 'icd' command to easily navigate between your IDE home, projects, and workspaces. Type 'icd --help' for more details.
 opt.--batch=enable batch mode (non-interactive).
-opt.--code=clone given code repository containing a settings folder into workspaces so that settings can be committed alongside code changes.
 opt.--debug=enable debug logging.
 opt.--force=enable force mode.
 opt.--force-plugin-reinstall=resets installed plugins to the project configuration
diff --git a/cli/src/main/resources/nls/Help_de.properties b/cli/src/main/resources/nls/Help_de.properties
index 83bd160e63..5e56da2c14 100644
--- a/cli/src/main/resources/nls/Help_de.properties
+++ b/cli/src/main/resources/nls/Help_de.properties
@@ -176,7 +176,6 @@ cmd.yarn.detail=Yarn ist ein Package Manager und Build-Werkzeug für JavaScript.
 commandlets=Verfügbare Kommandos:
 icd-hint=Hinweis: Verwenden Sie den Befehl 'icd' um einfach zwischen Ihrem IDE-Hauptverzeichnis, Projekten und Workspaces zu navigieren. Geben Sie 'icd --help' für weitere Details ein.
 opt.--batch=Aktiviert den Batch-Modus (nicht-interaktive Stapelverarbeitung).
-opt.--code=Git-Repository sowohl als Code- als auch als Settings-Repository verwenden.
 opt.--debug=Aktiviert Debug-Ausgaben (Fehleranalyse).
 opt.--force=Aktiviert den Force-Modus (Erzwingen).
 opt.--force-plugin-reinstall=Setzt installierte Plugins zurück auf die Projektkonfiguration.
diff --git a/cli/src/test/java/com/devonfw/tools/ide/commandlet/CreateCommandletTest.java b/cli/src/test/java/com/devonfw/tools/ide/commandlet/CreateCommandletTest.java
index 98534e72a9..cc393b7ff5 100644
--- a/cli/src/test/java/com/devonfw/tools/ide/commandlet/CreateCommandletTest.java
+++ b/cli/src/test/java/com/devonfw/tools/ide/commandlet/CreateCommandletTest.java
@@ -7,15 +7,12 @@
 import org.junit.jupiter.api.BeforeEach;
 import org.junit.jupiter.api.Test;
 import org.junit.jupiter.api.io.TempDir;
-import org.junit.jupiter.params.ParameterizedTest;
-import org.junit.jupiter.params.provider.ValueSource;
 
 import com.devonfw.tools.ide.cli.CliArguments;
 import com.devonfw.tools.ide.cli.CliException;
 import com.devonfw.tools.ide.context.AbstractIdeContextTest;
 import com.devonfw.tools.ide.context.IdeContext;
 import com.devonfw.tools.ide.context.IdeTestContext;
-import com.devonfw.tools.ide.context.ProcessContextGitMock;
 import com.devonfw.tools.ide.environment.EnvironmentVariables;
 import com.devonfw.tools.ide.environment.EnvironmentVariablesType;
 import com.devonfw.tools.ide.git.GitContextImplMock;
@@ -39,6 +36,10 @@ void setup() {
     if (Files.exists(newProjectPath)) {
       context.getFileAccess().delete(newProjectPath);
     }
+    Path tempProjectPath = context.getTempPath().resolve(IdeContext.FOLDER_PROJECTS).resolve(NEW_PROJECT_NAME);
+    if (Files.exists(tempProjectPath)) {
+      context.getFileAccess().delete(tempProjectPath);
+    }
     this.context = context;
   }
 
@@ -58,63 +59,18 @@ void testCreateCommandletRun() {
     cc.newProject.setValueAsString(NEW_PROJECT_NAME, context);
     cc.settingsRepo.setValue(IdeContext.DEFAULT_SETTINGS_REPO_URL);
     cc.skipTools.setValue(true);
-    // act
-    cc.run();
-    // assert
-    Path newProjectPath = context.getIdeRoot().resolve(NEW_PROJECT_NAME);
-    assertThat(newProjectPath).exists();
-    assertThat(context.getIdeHome()).isEqualTo(newProjectPath);
-    assertThat(newProjectPath.resolve(IdeContext.FOLDER_PLUGINS)).exists();
-    assertThat(newProjectPath.resolve(IdeContext.FOLDER_SOFTWARE)).exists();
-    assertThat(newProjectPath.resolve(IdeContext.FOLDER_WORKSPACES).resolve(IdeContext.WORKSPACE_MAIN)).exists();
-  }
 
-  @ParameterizedTest
-  @ValueSource(strings = { "https://some-code-repository", "ssh://some-settings-repository" })
-  void testWarningWhenRepoDoesNotMeetNamingConvention(String invalidRepo, @TempDir Path tempDir) {
-    // arrange
-    ProcessContextGitMock gitMock = new ProcessContextGitMock(context, tempDir);
-    context.setProcessContext(gitMock);
-    CreateCommandlet cc = context.getCommandletManager().getCommandlet(CreateCommandlet.class);
-    cc.newProject.setValueAsString(NEW_PROJECT_NAME, context);
-    cc.codeRepositoryFlag.setValue(!invalidRepo.contains("code")); // raise conflict
-    cc.settingsRepo.setValue(invalidRepo);
-    cc.skipTools.setValue(true);
-    context.setAnswers("yes");
     // act
     cc.run();
-    // assert
-    assertThat(context).logAtInteraction().hasMessageContaining("Do you really want to create the project?");
-    Path newProjectPath = context.getIdeRoot().resolve(NEW_PROJECT_NAME);
-    assertThat(newProjectPath).exists();
-    assertThat(context.getIdeHome()).isEqualTo(newProjectPath);
-    assertThat(newProjectPath.resolve(IdeContext.FOLDER_PLUGINS)).exists();
-    assertThat(newProjectPath.resolve(IdeContext.FOLDER_SOFTWARE)).exists();
-    assertThat(newProjectPath.resolve(IdeContext.FOLDER_WORKSPACES).resolve(IdeContext.WORKSPACE_MAIN)).exists();
-  }
 
-  @Test
-  void testWarningWhenCodeRepoUsingDefaultMark(@TempDir Path tempDir) {
-    String invalidCodeRepo = "-";
-    // arrange
-    ProcessContextGitMock gitMock = new ProcessContextGitMock(context, tempDir);
-    context.setProcessContext(gitMock);
-    CreateCommandlet cc = context.getCommandletManager().getCommandlet(CreateCommandlet.class);
-    cc.newProject.setValueAsString(NEW_PROJECT_NAME, context);
-    cc.settingsRepo.setValue(invalidCodeRepo);
-    cc.codeRepositoryFlag.setValue(true);
-    cc.skipTools.setValue(true);
-    context.setAnswers("https://some-code-repository");
-    // act
-    cc.run();
     // assert
-    assertThat(context).logAtWarning().hasMessageContaining("'-' is found after '--code'. This is invalid.");
     Path newProjectPath = context.getIdeRoot().resolve(NEW_PROJECT_NAME);
     assertThat(newProjectPath).exists();
     assertThat(context.getIdeHome()).isEqualTo(newProjectPath);
     assertThat(newProjectPath.resolve(IdeContext.FOLDER_PLUGINS)).exists();
     assertThat(newProjectPath.resolve(IdeContext.FOLDER_SOFTWARE)).exists();
     assertThat(newProjectPath.resolve(IdeContext.FOLDER_WORKSPACES).resolve(IdeContext.WORKSPACE_MAIN)).exists();
+    assertThat(context.getIdeRoot().resolve("_ide/tmp/projects").resolve(NEW_PROJECT_NAME)).doesNotExist();
   }
 
   @Test
@@ -173,6 +129,7 @@ void testIdeVersionTooOldForExistingProject() {
   @Test
   void testIdeVersionOk() {
     // arrange
+
     CreateCommandlet cc = context.getCommandletManager().getCommandlet(CreateCommandlet.class);
     cc.newProject.setValueAsString(NEW_PROJECT_NAME, context);
     cc.settingsRepo.setValue(IdeContext.DEFAULT_SETTINGS_REPO_URL);
@@ -217,9 +174,39 @@ void testWelcomeMessageDisplayed() {
     // assert
     Path newProjectPath = context.getIdeRoot().resolve(NEW_PROJECT_NAME);
     assertThat(newProjectPath).exists();
+    assertThat(context.getIdeHome()).isEqualTo(newProjectPath);
+    assertThat(newProjectPath.resolve(IdeContext.FOLDER_PLUGINS)).exists();
+    assertThat(newProjectPath.resolve(IdeContext.FOLDER_SOFTWARE)).exists();
+    assertThat(newProjectPath.resolve(IdeContext.FOLDER_WORKSPACES).resolve(IdeContext.WORKSPACE_MAIN)).exists();
+    assertThat(context.getIdeRoot().resolve("_ide/tmp/projects").resolve(NEW_PROJECT_NAME)).doesNotExist();
     assertThat(context).logAtInfo().hasMessageContaining("Welcome to your new IDEasy project!");
   }
 
+  @Test
+  void testProjectWithInvalidRepositoryNotCreated() {
+
+    // arrange - create a new project that is invalid (does not contain ide.properties file)
+    GitContextImplMock gitContextImplMock = new GitContextImplMock(context, TEST_RESOURCES.resolve("pypi"));
+
+    context.setGitContext(gitContextImplMock);
+    CreateCommandlet cc = context.getCommandletManager().getCommandlet(CreateCommandlet.class);
+    cc.newProject.setValueAsString(NEW_PROJECT_NAME, context);
+    cc.settingsRepo.setValue(IdeContext.DEFAULT_SETTINGS_REPO_URL);
+    cc.skipTools.setValue(true);
+
+    // act - run the create command
+    assertThatThrownBy(() -> cc.run())
+        .isInstanceOf(CliException.class)
+        .hasMessageContaining("This repository does not include an " + EnvironmentVariables.DEFAULT_PROPERTIES + " or " + EnvironmentVariables.LEGACY_PROPERTIES
+            + " file at the top level or a settings folder with such a file.")
+        .hasMessageContaining("The repository does not seem to be a valid IDEasy repository. Please verify the repository and try again.");
+
+    // assert
+    Path newProjectPath = context.getIdeRoot().resolve(NEW_PROJECT_NAME);
+    assertThat(newProjectPath).doesNotExist();
+    assertThat(context.getTempPath().resolve(IdeContext.FOLDER_PROJECTS).resolve(NEW_PROJECT_NAME)).doesNotExist();
+  }
+
   @Test
   void testCreateWithDashPlaceholderAsCliArgument() {
     // arrange - see https://github.com/devonfw/IDEasy/issues/2106
@@ -234,7 +221,7 @@ void testCreateWithDashPlaceholderAsCliArgument() {
     assertThat(result).isEqualTo(0);
     assertThat(context).logAtError().hasNoMessageContaining("not found for commandlet");
     assertThat(context).logAtInfo()
-        .hasMessageContaining("'-' was found for settings repository, the default settings repository");
+        .hasMessageContaining("'-' was found for the repository, the default settings repository");
     Path newProjectPath = context.getIdeRoot().resolve(NEW_PROJECT_NAME);
     assertThat(newProjectPath).exists();
   }
diff --git a/cli/src/test/java/com/devonfw/tools/ide/git/GitContextMock.java b/cli/src/test/java/com/devonfw/tools/ide/git/GitContextMock.java
index 2f5c689834..e608dace12 100644
--- a/cli/src/test/java/com/devonfw/tools/ide/git/GitContextMock.java
+++ b/cli/src/test/java/com/devonfw/tools/ide/git/GitContextMock.java
@@ -53,6 +53,9 @@ public void clone(GitUrl gitUrl, Path repository) {
     FileAccess fileAccess = this.context.getFileAccess();
     fileAccess.mkdirs(repository);
 
+    // Create ide.properties to simulate a valid repository
+    fileAccess.touch(repository.resolve("ide.properties"));
+
     Path gitFolder = repository.resolve(GIT_FOLDER);
     fileAccess.mkdirs(gitFolder);
     String branch = gitUrl.branch();
diff --git a/cli/src/test/resources/settings/ide.properties b/cli/src/test/resources/settings/ide.properties
new file mode 100644
index 0000000000..e69de29bb2
diff --git a/documentation/settings.adoc b/documentation/settings.adoc
index e9de2335ca..632c2c4426 100644
--- a/documentation/settings.adoc
+++ b/documentation/settings.adoc
@@ -18,17 +18,18 @@ This gives you the freedom to control and manage the tools with their versions a
 To setup and customize these settings simply follow the link:usage.adoc#admin[admin usage guide].
 Then tell your team to create the project using your project sepcific settings git URL:
 ```
-ide create «project-name» --code «settings-url»
+ide create «project-name» «settings-url»
 ```
 
 == Code-repository
 
 It is even possible to include your settings into your code repository by having the `settings` folder directly on top-level of your code git repository.
 This allows you to keep settings changes in sync with code changes and manage them in the same pull/merge requests.
-To use this approach simply copy the content of https://github.com/devonfw/ide-settings[ide-settings] to a top-level `settings` folder in your code repository root and tell your developers to create the project usining the `--code` option:
+To use this approach simply copy the content of https://github.com/devonfw/ide-settings[ide-settings] to a top-level `settings` folder in your code repository.
+You can then create the project as normal as IDEasy will automatically detect that you are using a code repository:
 
 ```
-ide create «project-name» --code «code-repo-url»
+ide create «project-name» «code-repo-url»
 ```
 
 IDEasy will clone your repository and create a symlink to the settings folder.