Effects of permafrost aggradation on greenhouse gas (GHG) dynamics and climate forcing have not been previously quantified. Here, we reconstruct changes in GHG balances over the late Holocene for a sub-arctic peatland by applying palaeoecological data combined with measured GHG flux data, focusing on the impact of permafrost aggradation in particular. Our data suggest that permafrost initiation around 3000 years ago resulted in GHG emissions, thereby slightly weakening the general long-term peatland cooling impact. As a novel discovery, based on our chronological data of bare peat surfaces, we found that current sporadic bare peat surfaces in subarctic regions are probably remnants of more extensive bare peat areas formed by permafrost initiation. Paradoxically, our data suggest that permafrost initiation triggered by the late Holocene cooling climate generated a positive radiative forcing and a short-term climate warming feedback, mitigating the general insolation-driven late Holocene summer cooling trend. Our work with historical data demonstrates the importance of permafrost peatland dynamics for atmospheric GHG concentrations, both in the past and future. It suggests that, while thawing permafrost is likely to initially trigger a change towards wetter conditions and consequent increase in CH4 forcing, eventually the accelerated C uptake capacity under warmer climate may overcome the thaw effect when a new hydrological balance becomes established.