Waterbodies such as lakes and ponds are abundant in vast Arctic landscapes and strongly affect the thermal state of the surrounding permafrost. In order to gain a better understanding of the impact of small- and medium-sized waterbodies on permafrost and the formation of thermokarst, a land surface model was developed that can represent the vertical and lateral thermal interactions between waterbodies and permafrost. The model was validated using temperature measurements from two typical waterbodies located within the Lena River delta in northern Siberia. Impact simulations were performed under current climate conditions as well as under a moderate and a strong climate-warming scenario. The performed simulations demonstrate that small waterbodies can rise the sediment surface temperature by more than 10°C and accelerate permafrost thaw by a factor of between 4 and 5. Up to 70% of this additional heat flux into the ground was found to be dissipated into the surrounding permafrost by lateral ground heat flux in the case of small, shallow, and isolated waterbodies. Under moderate climate warming, the lateral heat flux was found to reduce permafrost degradation underneath waterbodies by a factor of 2. Under stronger climatic warming, however, the lateral heat flux was too small to prevent rapid permafrost degradation. The lateral heat flux was also found to strongly impede the formation of thermokarst. Despite this stabilizing effect, our simulations have demonstrated that underneath shallow waterbodies (<1 m), thermokarst initiation happens 30 to 40 years earlier than in simulations without preexisting waterbody.