Tropical peat swamp forests are major global carbon (C) stores that are particularly vulnerable to human intervention. In Peruvian Amazonia they have been severely degraded through recurrent cutting of Mauritia flexuosa palms for fruit harvesting. This has potentially transformed them from a CO2 sink into a significant source. To estimate emissions associated with degradation, we combined C stock changes in aboveground biomass with peat C losses along a gradient comprising undegraded (Intact), moderately degraded (mDeg) and heavily degraded (hDeg) palm swamps. Temporal and spatial dynamics of the main components of the peat C budget (heterotrophic soil respiration (Rh) and litterfall) were measured (bi)monthly over three years, while annual site-specific root C inputs and default dissolved organic C exports were taken from the literature. Variables measured at tree or microtopographic level were site-scaled considering forest structural changes from degradation. Site-scale litterfall (Mg C ha−1 year−1) at the hDeg site (2.3 ± 0.5) was less than half the rate at the Intact and mDeg sites (5.2 ± 0.9 and 6.0 ± 1.6, respectively). Conversely, site-scale Rh (Mg C ha−1 year−1) was higher at the hDeg site (9.6 ± 0.6) than at the Intact and mDeg sites (7.5 ± 1.1 and 6.1 ± 0.5, respectively). The peat carbon budget (Mg C ha−1 year−1) indicated that medium degradation reduced the sink capacity of the soil (from -1.8 ± 1.8 at the Intact site to -0.3 ± 0.7 at the mDeg site) while high degradation turned the soil into a high C source (6.0 ± 0.6 at the hDeg site). The large total C stock loss rates of 23.5 ± 14.3 and 57.7 ± 14.3 Mg CO2 ha−1 year−1 at the mDeg and hDeg sites, respectively, which originated 94 and 77% from aboveground biomass changes clearly highlight the need for sustainable management of these peatlands.