Ongoing climate warming and humidification have triggered a series of environmental responses, including vegetation succession, significant permafrost degradation, hydrological shifts, alterations in water resources, and increased frequency of freeze-thaw events. Notably, vegetation modulates the water cycle, regulates soil temperatures, and sustains permafrost stability. However, the extent to which the degradation of alpine vegetation impacts soil hydrothermal processes in permafrost regions is unclear. Therefore, we measured the soil moisture and temperature of the alpine wet meadow (AWM) and extremely degraded alpine wet meadow (EDAWM) ecosystems within the permafrost regions of the Qinghai–Tibet Plateau in situ. The objectives of this study were to explore the freeze-thaw cycles and hydrothermal dynamics within the active layer and to understand the mechanisms behind the effects of extreme alpine vegetation degradation. The results revealed that the AWM ecosystem had a longer soil freezing duration and a higher soil freezing rate than those of the EDAWM ecosystem. Additionally, the freezing index was higher in EDAWM than that in AWM, while differences in the thawing index were insignificant. The variance in the thaw-freeze ratios between the two ecosystems indicated that extreme vegetation degradation in AWM altered soil heat absorption and dissipation in the plant root zone and the deeper active layer. Moreover, EDAWM exhibited a decrease in soil bidirectional freezing processes, particularly from the permafrost table upwards. The extreme degradation in AWM changed soil physical properties and organic matter content, reducing ground temperatures in the active and permafrost layers of EDAWM, particularly during winter. The reduced heat transfer in EDAWM resulted in an active layer depth 9 cm shallower than that in AWM. Without vegetation cover, soil moisture in EDAWM was more prone to evaporation or deeper infiltration, leading to lower soil moisture content than that in AWM. Furthermore, an increase in soil moisture content decreased temperature in shallow soils in AWM but increased it in shallow soils in EDAWM. In summary, extreme vegetation degradation impaired air-heat exchange in AWM soil. These insights provide a scientific and theoretical basis for predicting permafrost evolution in the Qinghai–Tibet Plateau, highlighting the complex interactions among vegetation degradation, soil hydrothermal processes, and climatic factors.