Land use changes cause changes in the hydrological cycle components and increase or decrease the amount of runoff and erosion in the watershed. Some land use changes become one of the most important problems in some watersheds all over the globe as the case in Ziarat watershed in Golestan province, Iran. Therefore, investigated the impacts of optimal scenario for development of residential areas on soil loss caused by surface runoff and raindrops using the TOPSIS method and WetSpa spatial hydrological distributed model in this study. ArcGIS-based TOPSIS multi-criteria decision making model was used to forman optimal scenario of residential development. WetSpa model inputs consist of digital maps including digital elevation model, land cover and soil texture (with 30 m cell size) and continuous time series of precipitation, evaporation and air temperature over hourly step for 6 years (2007–2013). The accuracy of flow simulations for the calibration period, depending on the Nash-Sutcliffe model efficiency was 67.02% and the suspended sediment concentration and sediment yield were 63.08% and 72.22%, respectively. According to the evaluation criteria considered in this study and using TOPSIS method, 37 hectares of the total watershed area is proper for residential development, but now the residential area of this watershed is more than 141.3 hectares. The amount of soil loss due to raindrops in the whole reference period was 381.54 kg/s and the amount of soil loss due to surface runoff was 227.715 kg/s. After applying the optimal residential development scenario in the WetSpa calibrated model, the amount of soil loss due to surface runoff and raindrops was compared in the two scenarios of current residential status and optimal residential development scenario. The results showed that the amount of soil loss due to surface runoff decreased significantly, but the soil loss caused by raindrops increased. Finally, as the amount of soil loss caused by surface runoff is significantly reduced compared to the soil loss caused by raindrops, the amount of total soil loss decreased. [ABSTRACT FROM AUTHOR]