Large storage dam projects may modify geo-environmental conditions in many ways. The reservoir impoundment of the 285.5 m high Xiluodu arch dam located on the Jinsha River (China) caused large-scale canyon deformations, including significant canyon contraction and uplift movements from reservoir to downstream valley. The dam experienced subsequent tilting towards upstream and raised a safety concern of the project. A Thermo-Hydro-Mechanical (THM) mechanism is proposed for this extraordinary behavior. Due to reservoir impounding and seepage, significant temperature drops and fluid pressure increase within the underlying geothermal limestone aquifer in a synclinal basin are primary root causes. Finite element THM simulations successfully reproduce these unique deformations. Recent observations of large quantities of thermalized discharge water downstream and high pore pressure in the limestone layer provide further support for the proposed mechanism. Furthermore, refined numerical modeling is adopted to evaluate the safety of Xiluodu dam subjected to potential larger canyon contractions. We conclude that these unprecedented phenomena are dominantly the consequence of THM response to regional hydrogeological evolution following the build-up of a large reservoir. The accumulated canyon contractions at the current stage would not pose a direct threat to the dam safety, but a tripled situation may cause severe safety issues.