Due to overexploitation and lower rainfall rates, it is essential to study the detailed water balance of the Keenjhar lake by considering the climate change impacts and higher water demands linked with the population growth. A hydrological model of Keenjhar Lake is developed based on a system dynamic approach using STELLA (Structural Thinking and Experiential Learning Laboratory with Animation). The model (STELLA) developed in the current research study comprises the following three sub-systems: population, water supply, and water demand. The hydrological and climate data for the period of seventeen years (2000–2016) is used in the current study. The monthly water budget of the Keenjhar Lake is determined by inflow components such as rainfall and the Kalri-Baghar Feeder (K.B.F) (upper) and outflow components such as evaporation, the K.B. Feeder (lower), and the Keenjhar-Gujju (K.G) canal from the lake. The water balance results revealed that the contribution of direct rainfall and the annual inflow components to the lake are 22.03% and 77.91%, respectively. Whereas the evaporation, outflow to K.B.F lower and water abstraction to the K.G. Canal constituted about 5.78%, 92.55%, and 1.57% of the total annual outflow from the lake, respectively. Moreover, the annual inflow components of the water budget of the lake showed a declining trend while the outflow components (water abstraction) intimated an increasing trend. The study results also acknowledged that the demand for water can increase from 3 × 1010 ft3/yr up to 1.2 × 1011 ft3/yr by the year 2050 (influence of overdrawing of water due to population growth), and water supply may decrease to 9.066 × 1010 ft3 (rainfall depletion due to climate change). A detailed water balance explains the main water loss components and will help in developing better water management practices and well-informed policy decisions.