Land creation projects have been implemented in China to expand urban space in mountainous areas. In addition to the predictable settlement brought about by filling construction, varying degrees of land subsidence and engineering failures have a demonstrated relationship to groundwater level fluctuation induced by land creation engineering. In this work, we adopted a typical large-scale land creation project, Yan’an New City in Shaanxi province, West China, as our study area. Prior to conducting the main experiment, preliminary field investigation and groundwater level monitoring were conducted to determine the groundwater fluctuation trend induced by land creation engineering. Although a blind drainage system was implemented, the depth aspect of groundwater level changes after large-scale land creation still needed to be addressed. To study the degree of impact and the settlement mechanism induced by the rising groundwater level, we conducted a Water Immersion Test (WIT) in a typical land creation site for 107 days. The rising groundwater level was simulated by injecting water from the bottom of the filling foundation. During the WIT, the soil water content, surface subsidence, and internal settlement of soil at different depths were obtained. Surface subsidence development could be categorized into four stages during the water level increase. The second stage, which is defined as the point when the groundwater level rises to 10m, marked the critical point in the process. Furthermore, it was ascertained that the local settlement in regions that were originally composed of steep slopes is larger than that in originally flat areas. In addition, ground cracks and sinkholes in the study area were inspected; and it was determined that they would become new channels that would accelerate water infiltration and exacerbate the settlement. Based on the results from our field investigation and testing, several suggestions are proposed for land creation projects to mitigate issues associated with construction-induced groundwater level rising.