Managing and dredging of ultra-fine sediment (UFS) in river estuaries becomes an environmental challenge due to its threat to the ecosystem. However, upcycling of UFS for the production of self-compacting mortar (SCM) could be a step toward sustainable waste management and yield the special rheological properties that required for SCM. This paper used UFS to replace cement at ratios of 0%, 5%, 10%, 15%, 20%, 25% and 30% to evaluate the packing density, hydration heat, rheological, fresh and hardened properties of SCM. The microstructure of SCM samples was also characterized by X-ray diffraction (XRD) and scanning electron microscopy (SEM). The results showed that all the SCM mixtures met the self-compacting characteristics requirement in accordance to EFNARC. The packing density and fluidity (mini-slump flow and V-funnel flow time) improved with 5% of UFS replacement but decreased at a higher replacement level. Furthermore, SCM mixtures containing UFS behaved like a pseudoplastic fluid, while apparent viscosity of SCM with UFS (up to 20%) during 60 min almost remained a constant value. The incorporation of 5%–15% UFS in SCM decreased the 60-min static yield stress. Based on the calorimetry and mechanical results, the presence of UFS decelerated the hydration, and SCM prepared with 5%–15% of UFS was able to retain 90% and 85% of its original flexural and compressive strengths at 91 days, respectively, with a 28-day strength of mortar grade M. SEM images also revealed that the bond between the UFS particles and the C–S–H gel matrix (interfacial transition zone) was weaker compared with that between the standard sand (NS) particles and the C–S–H gel matrix at higher replacement ratios of cement. Overall, based on the mechanical properties and the microstructure observation, it can be concluded that UFS can be effectively utilized at a replacement level of 5%–15% to produce self-compacting mortar with a lower carbon footprint.