Permafrost, a key component of the arctic and global climate system, is highly sensitive to climate change. Observed and ongoing permafrost degradation influences arctic hydrology, ecology and biogeochemistry, and models predict that rapid warming is expected to significantly reduce near-surface permafrost and seasonally frozen ground during the 21st century. These changes raise concern of how permafrost thaw affects the exchange of water and energy with the atmosphere. However, associated impacts of permafrost thaw on the surface energy balance and possible feedbacks on the climate system are largely unknown. In this study, we show that in northern subarctic Sweden, permafrost thaw and related degradation of peat plateaus significantly change the surface energy balance of three peatland complexes by enhancing latent heat flux and, to less degree, also ground heat flux at the cost of sensible heat flux. This effect is valid at all radiation levels but more pronounced at higher radiation levels. The observed differences in flux partitioning mainly result from the strong coupling between soil moisture availability, vegetation composition, albedo and surface structure. Our results suggest that ongoing and predicted permafrost degradation in northern subarctic Sweden ultimately result in changes in land?atmosphere coupling due to changes in the partitioning between latent and sensible heat fluxes. This in turn has crucial implications for how predictive climate models for the Arctic are further developed.