The frequently observed forest decline in water‐limited regions may be associated with impaired tree hydraulics, but the precise physiological mechanisms remain poorly understood. We compared hydraulic architecture of Mongolian pine (Pinus sylvestris var. mongolica) trees of different size classes from a plantation and a natural forest site to test whether greater hydraulic limitation with increasing size plays an important role in tree decline observed in the more water‐limited plantation site. We found that trees from plantations overall showed significantly lower stem hydraulic efficiency. More importantly, plantation‐grown trees showed significant declines in stem hydraulic conductivity and hydraulic safety margins as well as syndromes of stronger drought stress with increasing size, whereas no such trends were observed at the natural forest site. Most notably, the leaf to sapwood area ratio (LA/SA) showed a strong linear decline with increasing tree size at the plantation site. Although compensatory adjustments in LA/SA may mitigate the effect of increased water stress in larger trees, they may result in greater risk of carbon imbalance, eventually limiting tree growth at the plantation site. Our results provide a potential mechanistic explanation for the widespread decline of Mongolian pine trees in plantations of Northern China. Hydraulic failure has been proposed as an important reason causing tree die‐off in vast areas of water‐limited land across the globe, especially under the influence of climate change, but the underlying mechanisms remain poorly understood. Decline has been more frequently observed in larger trees, and significant changes in hydraulic architecture are also commonly found with increasing tree size, suggesting a mechanistic linkage between tree decline and hydraulic limitations mediated by variation in tree size. Here, we compared hydraulic architecture of Pinus sylvestris var. mongolica trees between a plantation and a natural forest site across different tree size classes to test whether greater hydraulic limitation in larger trees is responsible for tree decline in the more water‐limited plantation site. We observed clear contrasts in hydraulic‐related characteristics between trees of the 2 sites and found clear trends of change in these traits with increasing tree size at the plantation site but not at the natural forest site, which provide a potential mechanistic explanation for the widespread decline of this species in plantations of Northern China.