Abstract Slope instability in unsaturated residual soils and loose fills has attracted increasing attention in recent years around the world such as Brazil, South Africa, Japan and in the Far East. Rain-induced failures are the most common ones. Rainfall leads to the development of perched water table, rising the main groundwater level and soil erosion (due to concentrated water flow), resulting in an increase in pore water pressure or a reduction in soil matric suction. This, in turn, results in a decrease in shear strength on the potential failure surface to a point where equilibrium can no longer be sustained in the slope and then failures occur. However, the present understanding of the influence of transient seepage in unsaturated soils, due to water infiltration under various boundary and ground conditions, and hydrogeological regimes on slope stability is still relatively poor compared with other elements of geomechanics. To investigate the influence of various rainfall events and initial ground conditions on transient seepage and hence slope stability, a parametric study has been conducted using the finite element method. A typical steep unsaturated cut slope in Hong Kong has been adopted for the parametric study. Variables considered in the parametric study include isotropic and anisotropic soil permeability, initial water table at upslope boundary, rainfall intensity and duration. Pore water pressures or suctions predicted during the transient seepage analyses are then used as input ground water conditions for subsequent limit equilibrium analyses of the stability of the slope. Factor of safety is calculated using Bishop’s simplified method, with modified Mohr–Coulomb failure criterion to allow for shear strength variation due to the presence of matric suction. Infiltration due to rain water causes a reduction of matrix suction, but an increase in moisture content and soil permeability in unsaturated soils. Perched water table is developed above the main water table. The factor of safety is not only governed by the intensity of rainfall, initial ground water table and the anisotropic permeability ratio, but it also depends on antecedent rainfall duration. A critical rainfall duration can be identified, at which the factor of safety is the lowest.