Rural livelihood transformation is increasingly vital for achieving agricultural modernization, reducing poverty, and promoting sustainable development in developing countries. Despite growing attention to land consolidation as a tool for improving agricultural resource allocation and productivity, its role in shaping rural livelihoods remains insufficiently understood. Addressing this gap, this study investigates the impacts of China’s High-Standard Farmland Construction (HFC), the country’s flagship land consolidation policy, on farmers’ livelihoods, focusing on both income level and income structure. Using provincial panel data from 30 regions, we adopt a continuous difference-in-differences design and mediation effect model to identify the causal effects of HFC. The results indicate that HFC significantly promotes total household income. Specifically, HFC facilitates mechanized agricultural production by consolidating fragmented plots, reducing production costs, and improving crop yields, thereby increasing agricultural income. Simultaneously, mechanization substitutes for labor and releases surplus workers, who often move to off-farm employment, diversifying income sources and stabilizing household livelihoods. Heterogeneity analysis reveals that the benefits of HFC are unevenly distributed. Low-income households, central provinces, and major grain-producing areas experience the greatest gains, and moderate-scale implementation proves more effective than either small- or excessively large-scale projects. This study highlights mechanization as a key mechanism linking land consolidation to rural livelihood transformation. The findings demonstrate that well-planned and efficiently implemented HFC policies can not only enhance agricultural productivity but also foster diversified and inclusive rural livelihoods.