So to be clear... the perm gen error happens if you use the menu "Run As >> Grails command (run-app)" right?
That probably means that our launch configurations generated for this scenario allocate insufficient permgen memory for your app. I take it may be a fairly big app?
Unfortunately, there's no way right now to change that (for the Run As >> Grails command"). See also this open bug report: https://issuetracker.springsource.com/browse/STS-1697.
You should be able to create a special Grails launch configuration through "Run As >> Configurations" and then you can modify the meory setting by adding to its VMArgs there.
Kris De Volder -- SpringSource