The presence of water has been confirmed to play an important role in affecting the failure properties of underground surrounding rock when subjected to complicated stress circumstances. In the current study, the crack propagation behavior of red sandstone affected by various moisture contents and intermediate principal stresses were investigated by using the QKX-YB200 true triaxial test system with unloading minimum principal stress. The experimental results demonstrate that the failure mode can be divided into shear, tension with shear, and slabbing. A clear observation of the fractured specimen shows that the extensional cracks tend to increase while shear cracks gradually diminish with the increase of moisture content and intermediate principal stress. For natural sandstone (with lower moisture content), the transition of failure mode from shear to slabbing requires higher intermediate principal stress. However, with the increase of moisture content, the occurrence of slabbing failure requires lower intermediate principal stress. The analysis of failure process indicates that the presence of water may restrain the possibility of rockburst, and the intermediate principal stress exhibits distinct functions in the failure behavior of natural and saturated sandstone. The surface microscopic morphological characteristics and acoustic emission signal feature were also analyzed to validate the transformation of the cracking mode. The current research indicated that the water-induced micro defect and damage effect, “water wedge” effect, intermediate principal stress effect are the key factors that contribute to the final slabbing failure in immersed hard rocks under true‑triaxial unloading conditions.