Catalysis of the reaction: 3-hydroxyindolin-2-one + O2 + reduced  = 2-hydroxy-2H-1,4-benzoxazin-3(4H)-one + H+ + H2O + oxidized .
3-hydroxyindolin-2-one,NAD(P)H:oxygen oxidoreductase (2-hydroxy-2H-1,4-benzoxazin-3(4H)-one-forming)