Ice wedges are common features of the subsurface in permafrost regions. They develop by repeated frost cracking and ice vein growth over hundreds to thousands of years. Ice-wedge formation causes the archetypal polygonal patterns seen in tundra across the Arctic landscape. Here we use field and remote sensing observations to document polygon succession due to ice-wedge degradation and trough development in ten Arctic localities over sub-decadal timescales. Initial thaw drains polygon centres and forms disconnected troughs that hold isolated ponds. Continued ice-wedge melting leads to increased trough connectivity and an overall draining of the landscape. We find that melting at the tops of ice wedges over recent decades and subsequent decimetre-scale ground subsidence is a widespread Arctic phenomenon. Although permafrost temperatures have been increasing gradually, we find that ice-wedge degradation is occurring on sub-decadal timescales. Our hydrological model simulations show that advanced ice-wedge degradation can significantly alter the water balance of lowland tundra by reducing inundation and increasing runoff, in particular due to changes in snow distribution as troughs form. We predict that ice-wedge degradation and the hydrological changes associated with the resulting differential ground subsidence will expand and amplify in rapidly warming permafrost regions.