Over the past decades, vegetation and climate have changed significantly in the Arctic. Deciduous shrub cover is often assumed to expand in tundra landscapes, but more frequent abrupt permafrost thaw resulting in formation of thaw ponds could lead to vegetation shifts towards graminoid-dominated wetland. Which factors drive vegetation changes in the tundra ecosystem are still not sufficiently clear. In this study, the dynamic tundra vegetation model, NUCOM-tundra (NUtrient and COMpetition), was used to evaluate the consequences of climate change scenarios of warming and increasing precipitation for future tundra vegetation change. The model includes three plant functional types (moss, graminoids and shrubs), carbon and nitrogen cycling, water and permafrost dynamics and a simple thaw pond module. Climate scenario simulations were performed for 16 combinations of temperature and precipitation increases in five vegetation types representing a gradient from dry shrub-dominated to moist mixed and wet graminoid-dominated sites. Vegetation composition dynamics in currently mixed vegetation sites were dependent on both temperature and precipitation changes, with warming favouring shrub dominance and increased precipitation favouring graminoid abundance. Climate change simulations based on greenhouse gas emission scenarios in which temperature and precipitation increases were combined showed increases in biomass of both graminoids and shrubs, with graminoids increasing in abundance. The simulations suggest that shrub growth can be limited by very wet soil conditions and low nutrient supply, whereas graminoids have the advantage of being able to grow in a wide range of soil moisture conditions and have access to nutrients in deeper soil layers. Abrupt permafrost thaw initiating thaw pond formation led to complete domination of graminoids. However, due to increased drainage, shrubs could profit from such changes in adjacent areas. Both climate and thaw pond formation simulations suggest that a wetter tundra can be responsible for local shrub decline instead of shrub expansion.