Shelf seas provide valuable ecosystem services, but their productivity and ecological functioning depend critically on sunlight transmitted through the water column. Anthropogenic reductions in underwater light availability are thus recognized as a serious threat to coastal habitats. The flux of strongly light-absorbing coloured dissolved organic matter (CDOM) from land to sea may have increased world-wide, but how this has altered the availability and spectral quality of light in shelf seas remains poorly known. Here, we present time-series data from the Sunda Shelf in Southeast Asia, where the monsoon-driven reversal in ocean currents supplies water enriched in CDOM from tropical peatlands for part of the year, resulting in 5–10-fold seasonal variation in light absorption by CDOM. We show that this terrigenous CDOM can dominate underwater light absorption at wavelengths up to 500 nm, and shift in the underwater irradiance spectrum towards longer wavelengths. The seasonal presence of terrigenous CDOM also causes the depth of 10% light penetration to shoal by 1–5 m, or 10–45%. We further estimate that on average 0.6 m, or 25%, of this terrigenous CDOM-mediated shoaling might be attributable to the enhanced loss of dissolved organic matter caused by peatland disturbance. We show that the seasonal change in the light environment is correlated with photo-acclimation by phytoplankton, and infer that terrigenous CDOM likely contributes to limiting the depth distribution of photosynthetic corals. Our results thus reveal an ecologically important but largely overlooked impact of human modifications to carbon fluxes that is likely becoming increasingly important in coastal seas.