Arctic tundra ecosystems are warming almost twice as fast as the global average1. Permafrost thaw and the resulting release of greenhouse gases from decomposing soil organic carbon have the potential to accelerate climate warming2, 3. In recent decades, Arctic tundra ecosystems have changed rapidly4, including expansion of woody vegetation5, 6, in response to changing climate conditions. How such vegetation changes contribute to stabilization or destabilization of the permafrost is unknown. Here we present six years of field observations in a shrub removal experiment at a Siberian tundra site. Removing the shrub part of the vegetation initiated thawing of ice-rich permafrost, resulting in collapse of the originally elevated shrub patches into waterlogged depressions within five years. This thaw pond development shifted the plots from a methane sink into a methane source. The results of our field experiment demonstrate the importance of the vegetation cover for protection of the massive carbon reservoirs stored in the permafrost and illustrate the strong vulnerability of these tundra ecosystems to perturbations. If permafrost thawing can more frequently trigger such local permafrost collapse, methane-emitting wet depressions could become more abundant in the lowland tundra landscape, at the cost of permafrost-stabilizing low shrub vegetation.