Hydropower in the Brazilian Amazon is a prevalent form of development, but dams have widespread and long-term environmental impacts that include deforestation in the areas surrounding the dams. Small hydropower plants (SHPs) are often perceived as having reduced environmental impacts compared to the large ones. In Brazil, SHPs are licensed by state governments, which have less strict requirements than the federal environmental agency. Brazil’s definition of ‘small’ dams has grown with successive increases in the maximum installed capacity from 10 to 30 to 50 megawatts (MW). This expanding loophole has increased the attractiveness of investing in multiple small dams rather than a single large dam, with resulting proliferation of SHPs. Forest dynamics surrounding the clustered SHPs when compared to single large dams are not well documented. In this study, we capitalized on a dense time series of satellite images to quantify and compare forest loss in the regions (over 110 000 km2 in area) surrounding 15 SHPs and 7 large dams at multiple watershed and buffer scales in the Brazilian Amazon for nearly two decades (2000–2018). The landscapes containing SHP clusters had lower cumulative forest loss as compared to those with large dams. However, when deforestation and hydroelectric generating capacity were jointly considered (i.e. forest loss per megawatt installed), we discovered an opposite trend. The regions surrounding the SHP clusters exhibited significant impacts ranging from 1.9 to 2.5 times that of the regions surrounding large dams across 5 km to sub-basin scales. Due to the considerable consequences of SHPs on deforestation, we argue that the rapid expansion of small hydropower should be approached with caution and requires more stringent environmental assessments.