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Climate warming is leading to permafrost thaw in northern peatlands, and current predictions suggest that thawing will drive greater surface wetness and an increase in methane emissions. Hydrology largely drives peatland vegetation composition, which is a key element in peatland functioning and thus in carbon dynamics. These processes are expected to change. Peatland carbon accumulation is determined by the balance between plant production and peat decomposition. But both processes are expected to accelerate in northern peatlands due to warming, leading to uncertainty in future peatland carbon budgets. Here, we compile a dataset of vegetation changes and apparent carbon accumulation data reconstructed from 33 peat cores collected from 16 sub-arctic peatlands in Fennoscandia and European Russia. The data cover the past two millennia that has undergone prominent changes in climate and a notable increase in annual temperatures towards present times. We show a pattern where European sub-Arctic peatland microhabitats have undergone a habitat change where currently drier habitats dominated by Sphagnum mosses replaced wetter sedge-dominated vegetation and these new habitats have remained relatively stable over the recent decades. Our results suggest an alternative future pathway where sub-arctic peatlands may at least partly sustain dry vegetation and enhance the carbon sink capacity of northern peatlands.