Found a workaround for this. Downloaded '.vsix' file of ionide-fs from this link. In VS Code Extensions tab, there is an option 'Install from VSIX'. That worked. So in case anyone is unable to install from vscode extensions tab directly(i.e. from Marketplace), they may try this way of installing an extension.

Just for information, I was getting the same error for version 1.7.2 of vscode as well while trying to install from Marketplace.

I tried the URL you supplied

$ wget -nv https://marketplace.visualstudio.com/_apis/public/gallery/publishers/llvm-vs-code-extensions/vsextensions/vscode-clangd/latest/vspackage
2021-02-11 09:04:22 URL:https://marketplace.visualstudio.com/_apis/public/gallery/publishers/llvm-vs-code-extensions/vsextensions/vscode-clangd/latest/vspackage [1270960/1270960] -> "vspackage"

Let's see what vspackage is

$ file vspackage
vspackage: gzip compressed data, max speed, from FAT filesystem (MS-DOS, OS/2, NT), original size modulo 2^32 1416661

That isn't a zip, it is a compressed gzip file. Let's uncompress that

$ mv vspackage vspackage.gz
$ gunzip -v vspackage.gz
vspackage.gz:    10.3% -- replaced with vspackage

What is vspackage now ?

$ file vspackage
vspackage: Zip archive data, at least v2.0 to extract

Finally, a zip file.

This worked for me:

1. Try downloading the vsix file of the extension from its github release page (make sure the extension version is compatible with your vscode version)
2. Disable your internet connection and install the vsix file via vscode.

After looking at most of the posts on the internet about it, I found out the solution:

C:\Program Files\Microsoft VS Code\bin> .\code --install-extension "C:\Pathto\extensions\ms-python.python-2023.23.13521007.vsix"

Microsoft Reference