Abstract Open water in sea ice significantly influences Arctic low‐cloud formation. However, current global climate models (GCMs), constrained by grid‐scale coupling between the atmosphere and surface components, cannot resolve subgrid heat fluxes and clouds contrasts between open water and sea ice, contributing to biases in Arctic low‐cloud simulations. Here, we develop a novel framework that explicitly resolves subgrid variations in surface component fluxes to the atmosphere in a state‐of‐the‐art GCM. Compared with the conventional framework, the new scheme significantly improves the simulated Arctic low‐cloud seasonality, increasing the correlation coefficient with observations from 0.55 to 0.70. This improvement arises from the seasonal variations in subgrid low‐cloud contrasts between open water and sea ice. The contrast is inversely proportional to the fractional coverage of open water during cold seasons, becoming pronounced when coverage falls below ∼30% at 2° resolution, due to substantial heat and moisture exchanges between small open water and the atmosphere.

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