Continued warming of the Arctic will likely accelerate terrestrial carbon (C) cycling by increasing both uptake and release of C. There are still large uncertainties in modelling Arctic terrestrial ecosystems as a source or sink of C. Most modelling studies assessing or projecting the future fate of C exchange with the atmosphere are based an either stand-alone process-based models or coupled climate–C cycle general circulation models, in either case disregarding biogeophysical feedbacks of land surface changes to the atmosphere. To understand how biogeophysical feedbacks will impact on both climate and C budget over Arctic terrestrial ecosystems, we apply the regional Earth system model RCA-GUESS over the CORDEX-Arctic domain. The model is forced with lateral boundary conditions from an GCMs CMIP5 climate projection under the RCP 8.5 scenario. We perform two simulations with or without interactive vegetation dynamics respectively to assess the impacts of biogeophysical feedbacks. Both simulations indicate that Arctic terrestrial ecosystems will continue to sequester C with an increased uptake rate until 2060s–2070s, after which the C budget will return to a weak C sink as increased soil respiration and biomass burning outpaces increased net primary productivity. The additional C sinks arising from biogeophysical feedbacks are considerable, around 8.5 Gt C, accounting for 22% of the total C sinks, of which 83.5% are located in areas of Arctic tundra. Two opposing feedback mechanisms, mediated by albedo and evapotranspiration changes respectively, contribute to this response. Albedo feedback dominates over winter and spring season, amplifying the near-surface warming by up to 1.35 K in spring, while evapotranspiration feedback dominates over summer exerting the evaporative cooling by up to 0.81 K. Such feedbacks stimulate vegetation growth with an earlier onset of growing-season, leading to compositional changes in woody plants and vegetation redistribution.