Thermo-erosion gullies in continuous permafrost regions where ice-wedge polygons are widespread contribute and change the drainage of periglacial landscapes. Gullying processes are causing long-term impacts to the Arctic landscape such as drainage network restructuring, permafrost erosion, sediment transport. Between 2009 and 2013, 35 gullies were mapped in a polygon terrace in the valley of the Glacier C-79 on Bylot Island, Nunavut (Canada), one of which was monitored for its hydrology. A gully (R08p) initiated in 1999 in a low-center polygon terrace. Between 1999 and 2013, 202 polygons over a surface of 28 891 m2 were breached by gullying. Overall, 1401 polygons were similarly breached on the terrace in the valley before 2013. R08p is fed by a 1.74 km2 watershed and the hydrological regime is characterized by peak flows of 0.69 m3 s−1 and a cumulative volume of 229 662 m3 for 2013. Historic aerial photography from 1972 and recent field surveys showed a change in the paths of water tracks and an increase in channelized flow in the gully area from none to 35% of the overall flow path of the section. The overall eroded area for the studied gullies in the valley up to 2013 was estimated at 158 000 m2 and a potential volume close to 200 000 m3. Gullying processes increased drainage of wetlands and the hydrological connectivity in the valley, while lowering residence time of water near gullied areas.