Urbanization in China has resulted in serious conflicts. Landless peasants are resettled between urban and rural areas in transitional communities. where their rural lifestyles often lead to spatial conflicts. We proposed a conceptual model to provide theoretical guidance for the governance of spatial conflicts and the sustainable transformation of resettled communities. Using field observations and semi-structured interviews, we examined 10 resettled communities in Hangzhou, China. The use of grounded theory to code the interview texts yielded 71 initial concepts and 22 categories that we then refined into six main categories: community physical environment (e.g., quality of private housing), community communication environment (e.g., heterogeneity of community population), landless peasants’ risk perceptions (e.g., impacts on social psychology), community governance capacity (e.g., trust in community’s self-governing organizations), residents’ space perceptions (e.g., awareness of space rights), and space competition behavior (e.g., fighting for public space). Finally, we applied social combustion theory to construct a logical relationship between the core category and main categories. The results show that changes in the physical and communication environments are the root elements (“combustion substances”) of spatial conflicts; the driving factors are landless peasants’ risk perceptions and community governance capabilities; direct elements (“ignition temperature”) are residents’ space perceptions and space competition behavior. Strategies for sustained transformation in resettled communities should prioritize gradual transitions of community space, improve support mechanisms for landless peasants, optimize community governance mechanisms, and cultivate awareness of community rules. This study aids the understanding of the inner mechanism for the sustainable development of resettled communities and has implications for other countries and regions in similar contexts.