Climate change modifies the water and energy fluxes between the atmosphere and the surface in mountainous regions such as the Qinghai–Tibet Plateau (QTP), which has shown substantial hydrological changes over the last decades, including rapid lake level variations. The ground across the QTP hosts either permafrost or is seasonally frozen, and, in this environment, the ground thermal regime influences liquid water availability, evaporation and runoff. Consequently, climate-induced changes in the ground thermal regime may contribute to variations in lake levels, but the validity of this hypothesis has yet to be established. This study focuses on the cryo-hydrology of the catchment of Lake Paiku (southern Tibet) for the 1980–2019 period. We process ERA5 data with downscaling and clustering tools (TopoSCALE, TopoSUB) to account for the spatial variability of the climate in our forcing data (Fiddes and Gruber, 2012, 2014). We use a distributed setup of the CryoGrid community model (version 1.0) to quantify thermo-hydrological changes in the ground during this period. Forcing data and simulation outputs are validated with data from a weather station, surface temperature loggers and observations of lake level variations. Our lake budget reconstruction shows that the main water input to the lake is direct precipitation (310 mm yr⁻¹), followed by glacier runoff (280 mm yr⁻¹) and land runoff (180 mm yr⁻¹). However, altogether these components do not offset evaporation (860 mm yr⁻¹). Our results show that both seasonal frozen ground and permafrost have warmed (0.17 ^◦C per decade 2 m deep), increasing the availability of liquid water in the ground and the duration of seasonal thaw. Correlations with annual values suggest that both phenomena promote evaporation and runoff. Yet, ground warming drives a strong increase in subsurface runoff so that the runoff/(evaporation + runoff) ratio increases over time. This increase likely contributed to stabilizing the lake level decrease after 2010. Summer evaporation is an important energy sink, and we find active-layer deepening only where evaporation is limited. The presence of permafrost is found to promote evaporation at the expense of runoff, consistently with recent studies suggesting that a shallow active layer maintains higher water contents close to the surface. However, this relationship seems to be climate dependent, and we show that a colder and wetter climate produces the opposite effect. Although the present study was performed at the catchment scale, we suggest that this ambivalent influence of permafrost may help to understand the contrasting lake level variations observed between the south and north of the QTP, opening new perspectives for future investigations.