Soft-sediment habitats are critical to marine ecosystems, supporting diverse benthic communities and key processes such as nutrient cycling, sediment stabilisation, and energy transfer. Among these habitats, tube-building polychaetes like Chaetopterus act as ecosystem engineers, modifying sediment properties and influencing community structure and functioning. This study investigated the ecological impacts of Chaetopterus in East Bay, Queen Charlotte Sound, focusing on its role in sediment modification, macrofaunal biodiversity, and functional group composition. Field surveys were conducted across ten paired Chaetopterus and control sites, selected to capture a gradient in tube mat density and depth. At each site, five sediment and macrofaunal samples were collected using coring techniques, enabling a robust comparison of Chaetopterus-modified and unmodified habitats. Results showed significantly higher organic content (3.1% ± 0.2 vs. 2.0% ± 0.1) and mud content (19.8% ± 2.0 vs. 7.7% ± 0.5) in Chaetopterus habitats, highlighting its role in sediment enrichment and stabilisation. Macrofaunal communities exhibited significantly greater species richness (20.0 ± 0.8 vs. 14.5 ± 0.7 species per core) and diversity (Shannon diversity: 2.48 ± 0.05 vs. 2.16 ± 0.06), driven by increased structural complexity and organic matter retention. Functional group analysis revealed a shift towards surface-oriented taxa in Chaetopterus habitats, including increased surface-feeding deposit feeders (e.g., amphipods) and scavengers (e.g., Halicarcinus cookii), alongside a relative reduction in deeper-burrowing taxa such as bioturbating polychaetes (Prionospio multicristata) and burrowing bivalves (Tawera spissa). This suggests that Chaetopterus tube mats promote surface-associated processes like organic matter turnover and detritus retention, while potentially suppressing sediment-mixing and oxygenation functions. Chaetopterus habitats exhibited significantly lower dispersion (PERMDISP), indicating more functionally homogeneous assemblages compared to control sites, where greater within-group variability reflected a broader range of functional traits, including suspension feeders and opportunistic burrowers (e.g., Phoxocephalidae amphipods). Chaetopterus density was significantly correlated with macrofaunal community composition, reinforcing the role of tube mats as a key driver of functional trait distributions. However, the extent of these effects varied across sites, suggesting that local environmental factors, particularly sediment properties (mud content, organic matter) and Chaetopterus density, mediate its influence on benthic communities. These findings advance understanding of habitat-modifying polychaetes by demonstrating that Chaetopterus effects are highly context-dependent, shaped by habitat × site interactions and environmental conditions. While previous studies have identified Chaetopterus as a biodiversity enhancer, this study highlights its dual role as both a facilitator of surfacedominated processes and a potential suppressor of deeper sediment functions. These findings provide critical insights into its ecological role within New Zealand's coastal ecosystems and underscore the need for site-specific management strategies that balance local biodiversity benefits with broader ecosystem functions.