This paper aims to investigate efficiency performance and the dynamic evolution of industrial circular economy (ICE). We first employ the cooperative game network data envelopment analysis (DEA) to measure the overall efficiency, subsystem efficiency, and factor efficiency of the ICE system. Then, an extended Malmquist index (EMI) method is proposed to identify the dynamic evolution of efficiency performance over time. Unlike the standard Malmquist index method, the proposed EMI method can finally decompose the EMI of the ICE system into the square root of the product of four dynamic indicators of efficiency change and the technological progress of subsystems, providing more details and dominants underlying EMI in the ICE system. The evaluation results of China's Yangtze River Delta region over 2012–2017 show that overall efficiency of the ICE system presents obvious disparity across cities and subsystems. Besides, it is found that EMI of the ICE system presents a V-shaped fluctuation and is mainly dominated by the environmental treatment (ET) subsystem. The decline of EMI of the ICE system early in the sample period (2013–2014) is caused by serious efficiency deterioration of the ET subsystem, while its rise at the end of sample period (2016–2017) is due to the technological progress of the ET subsystem. Display omitted •Industrial circular economy of China's Yangtze River Delta region is assessed.•The internal structure of industrial circular economy system is demonstrated.•The cooperative game network DEA is employed to measure ICE performance.•A novel extended Malmquist index is proposed for evaluating ICE performance change.