Objective. This study aims to reveal longitudinal changes in functional network connectivity within and across different brain structures near chronically implanted microelectrodes. While it is well established that the foreign-body response (FBR) contributes to the gradual decline of the signals recorded from brain implants over time, how the FBR affects the functional stability of neural circuits near implanted brain–computer interfaces (BCIs) remains unknown. This research aims to illuminate how the chronic FBR can alter local neural circuit function and the implications for BCI decoders. Approach. This study utilized single-shank, 16-channel,100 µm site-spacing Michigan-style microelectrodes (3 mm length, 703 µm2 site area) that span all cortical layers and the hippocampal CA1 region. Sex balanced C57BL6 wildtype mice (11–13 weeks old) received perpendicularly implanted microelectrode in left primary visual cortex. Electrophysiological recordings were performed during both spontaneous activity and visual sensory stimulation. Alterations in neuronal activity near the microelectrode were tested assessing cross-frequency synchronization of local field potential (LFP) and spike entrainment to LFP oscillatory activity throughout 16 weeks after microelectrode implantation. Main results. The study found that cortical layer 4, the input-receiving layer, maintained activity over the implantation time. However, layers 2/3 rapidly experienced severe impairment, leading to a loss of proper intralaminar connectivity in the downstream output layers 5/6. Furthermore, the impairment of interlaminar connectivity near the microelectrode was unidirectional, showing decreased connectivity from Layers 2/3 to Layers 5/6 but not the reverse direction. In the hippocampus, CA1 neurons gradually became unable to properly entrain to the surrounding LFP oscillations. Significance. This study provides a detailed characterization of network connectivity dysfunction over long-term microelectrode implantation periods. This new knowledge could contribute to the development of targeted therapeutic strategies aimed at improving the health of the tissue surrounding brain implants and potentially inform engineering of adaptive decoders as the FBR progresses. Our study’s understanding of the dynamic changes in the functional network over time opens the door to developing interventions for improving the long-term stability and performance of intracortical microelectrodes.