Developing advanced magnetorheological elastomers (MREs) with a range of specific characteristics is essential for matching the growing demands from a wide spectrum of applications such as automotive, healthcare, sensors, and actuators. However, the compatibility problems between constituents and the low magnetorheological (MR) effect have limited their performance and integration into actual applications. Here, a novel MRE consisting of styrene‐b‐(ethylene‐co‐butylene)‐b‐styrene (SEBS) and Ni‐rich Permalloy (Ni80Fe17Mo3) has been developed with remarkable functional properties. The correlation between the filler concentration and microstructural, mechanical, thermal, magnetic, and MR properties is reported. The incorporation of Ni‐rich Permalloy has a reinforcement effect in the polymer matrix and leads to an improvement of the thermal stability. Further, the saturation magnetization and remanence of the composites increase with increasing filler content. In particular, the saturation magnetization increases from 14.3 to 41.9 A m2/kg, and the remanence from 1.2 to 4.0 A m2/kg when the concentration increases from 20 to 60 wt%. Finally, the MR effect of composites with 20, 40, and 60 wt% filler content is 8%, 15%, and 35%, respectively. A magnetic dipole interaction model is used to discuss the MR effect and a relation between the MR effect and the main parameters affecting it is proposed. Importantly, the obtained MR values are higher when compared with related composites for the same magnetic content, and for the same or similar polymeric matrices, demonstrating the suitability of the developed materials for the fabrication of high‐response functional MR devices.