The short wavelength operation of free-electron laser (FEL) oscillators is limited by the availability of high-reflectivity, thermally stable, and radiation-resistant FEL mirrors in the vacuum UV (VUV) wavelength. We report our recent work to extend the shortest lasing wavelength of the oscillator FEL to 168.6 nm using a storage ring FEL. This progress has been made possible by developing a new FEL configuration with substantially reduced undulator harmonic radiation on the FEL mirror, a thermally stable FEL optical cavity, and a new type of high-reflectivity fluoride-based multilayer coating with a protective capping layer. Using these fluoride-based mirrors, we have demonstrated storage ring FEL lasing from 168.6 to 179.7 nm with excellent beam stability. Employing this VUV FEL in Compton scattering, we have produced the first 120 MeV gamma rays at the High Intensity Gamma-ray Source (HIGS). Operating the HIGS in this new high-energy region will create many new opportunities for photonuclear physics research, in particular, the low-energy quantum chromodynamics research.