Asia’s largest water lagoon, Chilika Lake, located in Odisha, India, is a vital economic and environmental source for the region. For the last few decades, many studies provided fragmented reports on the rapid deterioration of environmental conditions due to climate changes from intensive urban and industrial activities. The present study, for the first time provides comprehensive information about the transition of the landscape, which had occurred in the region with their associated impact on surface temperature and ecological services. Remote sensing techniques were utilised to classify land use and land cover dynamics over a period of 30 years (1991–2021). Landsat data were used to create maps for the Normalised Difference Vegetation Index (NDVI), Normalized Difference Water Index (NDWI), and Land Surface Temperature (LST) to apprehend the spatial and temporal variability and its ecological functions. The findings revealed that the lake area shrank by around 11.7% in the last three decades, owing to the conversion of mangrove and wetland areas into agricultural and urban land. The NDVI maps revealed a decline in plant cover in the catchment region, indicating a decrease in the lake's ecological services, whereas the NDWI maps indicated a reduction in the catchment area of the lake, and these maps highlighted eutrophication spots on lake surface images due to increasing nutrient concentrations and decreased water quality in the lake. LST maps indicated a rise in surface temperature, which might be attributed to decreasing vegetative cover and water bodies, which tend to alter the lake's thermal regime. The CA-Markov model forecast map for 2026 suggested that the lake area would further decrease while urban and agricultural land would rise. The prediction map for 2021 compared to the existing map showed a slight improvement in lake levels caused by the pandemic, limited urban activity, and other possibilities.