Abstract Thermo-erosional river bank undercutting is caused by the combined action of thermal and mechanical erosion of the permafrost by Arctic rivers whilst the overlying sediment withstands collapse temporarily. Here, we report the discovery of a large thermo-erosional tunnel that formed in the banks of a meltwater-fed stream in northeast Greenland in summer 2015. The tunnel was observed over eight days (14–22 July), during which period the tunnel remained open but bank-side slumping increased. Stream solute load increased immediately downstream and remained high 800 m from the tunnel. Whilst this field observation was opportunistic and information somewhat limited, our study provides a rare insight into an extreme event impacting permafrost, local geomorphology and stream habitat. With accelerated climate change in Arctic regions, increased permafrost degradation and warmer stream water temperature are predicted thereby enhancing potential for thermo-erosional niche development and associated stream bank slumping. This change could have significant implications for stream physicochemical habitat and, in turn, stream benthic communities, through changes in aquatic habitat conditions.