Utilizing air-source heat pumps for residential space heating in cold climates is an important measure for environmental protection and energy conservation. In this paper, a new water flow configuration for water-heating process is proposed for transcritical CO2 heat pump combined with a dedicated mechanical subcooling (DMS) subsystem. In the modified system, the conventional parallel water flow configuration is changed to a new series water flow configuration, in which the CO2 gas cooler is separated into two parts with the condenser of DMS subsystem in the middle. The water is sequentially heated by CO2 gas cooler 1, condenser of DMS subsystem and CO2 gas cooler 2. Through three-stage heating, the uniformity of refrigerant-water temperature difference field is remarkably improved. The evaluations are conducted from energetic, exergetic and economic perspectives. Firstly, the impact of heat transfer area allocation among the three water-heating heat exchangers on system performance is numerically investigated. The results show that the COP of modified system is 1.6%–7.6% higher than that of the existing system. The greater the temperature difference between supply and return water and the higher the ambient temperature are, the more significantly the COP increases. By evaluating heating seasonal performance in three typical cities, energy efficiency of the modified system is increased by 2.4%–6.5%. Besides, the exergy efficiency is also improved by 2.1%–6.6%. As for life cycle cost, the proposed system can save up to 3.7% investment in terms of annual operation.