Sand dredging is an economic activity with severe ecological effects. It stirs up sediment, thereby reducing water clarity and underwater light climate, which in turn results in a series of environmental impacts. This study aimed to monitor the water clarity in Poyang Lake affected by the dredging, which started in 2001. A time series of LANDSAT images were used to identify vessels and estimate the concurrent water clarities, while MODIS images were used to estimate the dynamic change of water clarity in the six June-October seasons from 2000 to 2005. The results indicated that the water clarity declined significantly with the increasing number of vessels from 2001 in northern Poyang Lake. The analyses of the final destinations of vessels and their location with the change of water clarity confirmed that the dredging was the main reason results in the decline of water clarity. The frequent backflow from the Yangtze River into Poyang Lake in summer pushes the turbid water from northern Poyang Lake southward, which extends the region affected by the dredging to central or even southern Poyang Lake. Sand dredging improved the local economy, but at the same time significantly and negatively affecting the Poyang Lake ecosystem. There is an urgent need to balance the relation between economic development and ecological conservation, minimize the negative effects of dredging and preserve the various productive, environmental and ecological functions provided by Poyang Lake.