We report the first significant detection of an X-ray cluster associated with a powerful (Lbol ∼ 1047 erg sec-1) radio-loud quasar at high redshift (z=1.06). Diffuse X-ray emission is detected out to ∼ 120 kpc from the CSS quasar 3C 186. A strong Fe-line emission at the Zrest = 1.06 confirms its thermal nature. We find that the CSS radio source is highly overpressured with respect to the thermal cluster medium by 2-3 orders of magnitude. This provides direct observational evidence that the radio source is not thermally confined as posited in the "frustrated" scenario for CSS sources. Instead, the radio source may be young and at an early stage of its evolution. This source provides the first detection of the AGN in outburst in the center of a cooling flow cluster. Powerful radio sources are thought to be triggered by the cooling flows. The evidence for the AGN activity and intermittent outbursts comes from the X-ray morphology of low redshift clusters, which usually do not harbour quasars. 3C186 is a young active radio source which can supply the energy into the cluster and potentially prevent its cooling. We discuss energetics related to the quasar activity and the cluster cooling flow, and possible feedback between the evolving radio source and the cluster.