The depletion of water resources caused by climate change and human activities is a pressing global issue. Lake Ereen is one of the ten natural landmarks of the Gobi-Altai of western Mongolia is included in the list of “important areas for birds” recognized by the international organization Birdlife. However, the construction of the Taishir Hydroelectric Power Station, aimed at supplying electricity to the western provinces of Mongolia, had a detrimental effect on the flow of the Zavkhan River, resulting in a drying-up and pollution of Lake Ereen, which relies on the river as its water source. This study assesses the pollution levels in Ereen Lake and determines the feasibility of its rehabilitation by redirecting the flow of the Zavkhan River. Field studies included the analysis of water quality, sediment contamination, and the composition of flora. The results show that the concentrations of ammonium, chlorine, fluorine, and sulfate in the lake water exceed the permissible levels set by the Mongolian standard. Analyses of elements from sediments revealed elevated levels of arsenic, chromium, and copper, exceeding international sediment quality guidelines and posing risks to biological organisms. Furthermore, several species of diatoms indicative of polluted water were discovered. Lake Ereen is currently in a eutrophic state and, based on a water quality index (WQI) of 49.4, also in a “polluted” state. Mass balance calculations and box model analysis determined the period of pollutant replacement for two restoration options: drying-up and complete removal of contaminated sediments and plants vs. dilution-flushing without direct interventions in the lake. We recommend the latter being the most efficient, eco-friendly, and cost-effective approach to rehabilitate Lake Ereen.