The annual variability of the Arctic Ocean is characterized by a large seasonal cycle against a background of climatically significant interannual and decadal timescale variations. One of the most significant of these interannual variations is wind-driven motion in the upper Arctic Ocean which alternates between anticyclonic and cyclonic regimes. This study focuses on differences in the seasonal cycle in years attributed to the cyclonic circulation regime (CCR), the anticyclonic circulation regime (ACCR), and the possible impact these seasonal anomalies have on fluctuations occurring over longer durations. Atmospheric, ice, and oceanic observational data and the results of numerical experiments with a coupled sea-ice-ocean model provide evidence that during the ACCR the arctic atmospheric pressure is higher and wind speed is lower compared with the CCR. A mean arctic ACCR winter is colder than a mean CCR winter. When the CCR dominates, precipitation increases over the ocean and decreases over the land. During the CCR, summer wind divergence effectively produces numerous sea-ice openings in the central Arctic Ocean. Repetition of this cyclonic process over several years results in overall thinner ice in the central Arctic, compared with that during the ACCR. Under the CCR, more ice-free summer areas lead to an accumulation of additional heat in the upper ocean, resulting in longer periods of ice melt, increases in fresher water content, and thinner ice. In CCR years both dynamical and thermodynamical factors cause excess ice and freshwater transport through Fram Strait from the Arctic into the Greenland Sea; the water balance in the Arctic Ocean is maintained via an increased inflow of the Atlantic water over the Barents Sea into the Nansen Basin. Finally, we stress that observed modifications of the Arctic Ocean thermohaline structure and Arctic Ocean-North Atlantic interactions in the early 1990s are a manifestation of the cyclonic circulation regime. ¿ 1999 American Geophysical Union