Within the Swedish Regional Climate Modeling Program, SWECLIM, a three‐dimensional (3‐D) coupled ice‐ocean model for the Baltic Sea has been developed to simulate physical processes on timescales of hours to decades. The code has been developed based on the massively parallel version of the Ocean Circulation Climate Advanced Modeling (OCCAM) project of the Bryan‐Cox‐Semtner model. An elastic‐viscous‐plastic ice rheology is employed, resulting in a fully explicit numerical scheme that improves computational efficiency. An improved two‐equation turbulence model has been embedded to simulate the seasonal cycle of surface mixed layer depths as well as deepwater mixing on decadal timescale. The model has open boundaries in the northern Kattegat and is forced with realistic atmospheric fields and river runoff. Optimized computational performance and advanced algorithms to calculate processor maps make the code fast and suitable for multi‐year, high‐resolution simulations. As test cases, the major salt water inflow event in January 1993 and the stagnation period 1980–1992, have been selected. The agreement between model results and observations is regarded as good. Especially, the time evolution of the halocline in the Baltic proper is realistically simulated also for the longer period without flux correction, data assimilation, or reinitialization. However, in particular, smaller salt water inflows into the Bornholm Basin are underestimated, independent of the horizontal model resolution used. It is suggested that the mixing parameterization still needs improvements. In addition, a series of process studies of the inflow period 1992/1993 have been performed to show the impact of river runoff, wind speed, and sea level in Kattegat. Natural interannual runoff variations control salt water inflows into the Bornholm Basin effectively. The effect of wind speed variation on the salt water flux from the Arkona Basin to the Bornholm Basin is minor.