Permeability evolution in remolded fault gouge creates critical uncertainties in geotechnical parameterization for dam foundations. However, the underlying multi-scale mechanisms, including mineral migration and pore structure changes, remain insufficiently understood. This study investigates these mechanisms using remolded plastic-thrust fault gouge from the Yulong Kashi hydropower project in China. We developed an innovative sample preparation method that combines in situ mineral self-cementation and directional compaction. The study integrated multidisciplinary tests including field in situ permeability tests; seepage–stress coupling tests; and micro-scale NMR/XRD/SEM-EDS analyses. Results demonstrate that remolded samples exhibit 1–2 orders of magnitude lower permeability (10⁻⁷ cm/s) than in situ samples (10⁻⁵ cm/s). This significant reduction is primarily caused by the loss of cementing agents and the uniform compaction of remolded samples, which leads to degraded pore connectivity. SEM-EDS analysis highlighted the leaching of cementing materials (such as K⁺, Ca²⁺ ions), while XRD revealed changes in mineral composition, with chlorite dissolution being the primary mineral alteration associated with permeability decay. Additionally, artificially enhanced cohesion distorted the mechanical behavior of the samples. These findings provide an explanation for why conventional laboratory tests tend to underestimate in situ permeability and overestimate shear strength in fault zones. This study establishes microstructure-informed correction frameworks for hydraulic and mechanical parameters in fault-crossing hydraulic engineering applications