Northern peatlands store a considerable proportion of global soil carbon in perennially frozen soil areas in Arctic and Sub-Arctic regions. Recent warming causes permafrost areas to thaw and expose formerly frozen carbon-rich soil to potential accelerated microbial decomposition. The goal of this study is to describe Holocene peatland development and quantify carbon dynamics along a thaw gradient of a rapidly thawing palsa in the sporadic‐discontinuous permafrost zone of Northern Finland (68°52´40´´N 21°04´45´´E). Peat cores until mineral soil were collected along a thaw chronosequence, from intact permafrost site (FRO), through partly thawed intermediate site (INT) and recently (~25 years since thaw) thawed area (THA). Macrofossil and 14C analyses showed a synchronicity of peatland development until recent thaw, with the initiation of peatland formation ~9200 cal. yr. BP, followed by a succession of peatland stages prior to permafrost aggradation ~4200 cal. yr. BP. However, the thawed area indicates a much younger onset of permafrost accumulation, which in turn suggests different permafrost dynamics. Analysis of soil carbon stocks indicated 15.2 kg m-2 (14.7 %) of carbon accumulated prior to thaw was lost in ~20 years post‐thaw. While this is the case for the comparison between the palsa and thawed area carbon stocks, the intermediate site has a higher calculated C stock compared to the most intact site. Based on C:N ratios, visual descriptions, and stable carbon isotope data, no significant increase in peat humification has been observed. Rapid peat accumulation post-thaw (159.4 g C m−2 yr−1) might offset potential losses. However, differences in the peat properties across the individual cores and different thawing features indicate a high degree of spatial heterogeneity, which ultimately casts doubt on a direct comparison of C stocks. Although this approach cannot conclusively determine if thermokarst wetlands in the sporadic permafrost zone of Fennoscandia are long-term carbon sinks or sources post-thaw, it emphasizes the importance of site history and spatial heterogeneity.