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I'm running version 1.21 but I think this may apply to earlier versions as well.

Take a look at the bottom right-hand side of the screen. You should see something that says Spaces or Tab-Size.

Mine shows spaces, -->

1. Click on the Spaces (or Tab-Size)
2. Choose Indent Using Spaces or Indent using Tabs
3. Select the amount of spaces or tabs you like.

This only works per document, not project-wide. If you want to apply it project-wide, you need to also add "editor.detectIndentation": false to your user settings.