Fungi play a key role in soil-plant interactions, nutrient cycling, and carbon flow and are essential for the functioning of arctic terrestrial ecosystems. Some studies have shown that the composition of fungal communities is highly sensitive to variations in environmental conditions, but little is known about how the conditions control the role of fungal communities (i.e. their ecosystem function). We used DNA metabarcoding to compare taxonomic and functional composition of fungal communities along a gradient of environmental severity in Northeast Greenland. We analysed soil samples from fell fields, heaths, and snowbeds, three habitats with very contrasting abiotic conditions. We also assessed within-habitat differences by comparing three widespread microhabitats (patches with high cover of Dryas, Salix, or bare soil). The data suggest that, along the sampled mesotopographic gradient, the greatest differences in both fungal richness and community composition are observed among habitats, while the effect of microhabitat is weaker, although still significant. Furthermore, we found that richness and community composition of fungi are shaped primarily by abiotic factors and to a lesser, though still significant extent, by floristic composition. Along this mesotopographic gradient, environmental severity is strongly correlated with richness in all fungal functional groups: positively in saprotrophic, pathogenic, and lichenised fungi, and negatively in ectomycorrhizal and root-endophytic fungi. Our results suggest complex interactions amongst functional groups, possibly due to nutrient limitation or competitive exclusion, with potential implications on soil carbon stocks. These findings are important in light of the environmental changes predicted for the Arctic.