Hydrologic conditions are a key factor in Arctic ecosystems, with strong influences on ecosystem structure and related effects on biogeophysical and biogeochemical processes. With systematic changes in water availability expected for large parts of the Northern high latitude region in the coming centuries, knowledge on shifts in ecosystem functionality triggered by altered water levels is crucial for reducing uncertainties in climate change predictions. Here, we present findings from paired ecosystem observations in Northeast Siberia that comprise a drained and a control site. At the former, the water table has been artificially lowered by up to 30 cm in summer for more than a decade. This sustained primary disturbance in hydrologic conditions has triggered a suite of secondary shifts in ecosystem properties, including vegetation community structure, snow cover dynamics, and radiation budget, all of which influence the net drainage effects. Reduced heat conductivity in dry organic soils was identified as the dominating drainage effect on energy budget and soil thermal regime. Through this effect, reduced heat transfer into deeper soil layers leads to shallower thaw depths, initially leading to a stabilization of organic permafrost soils, while the long-term effects on permafrost temperature trends still need to be assessed. At the same time, more energy is transferred back into the atmosphere in the drained area, with the largest fraction attributed to the sensible heat flux. Accordingly, this increase in vertical heat transfer will act as a positive feedback to permafrost degradation triggered by the warming of the lower atmospheric surface layer.