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Overgrazing is one of the main causes of desertification in the semiarid Horqin sandy grassland of northern China. Excluding grazing livestock is considered as an alternative to restore vegetation in degraded sandy grassland in this region. However, few data are available concerning the impacts of continuous grazing and livestock exclusion on soil properties. In this paper, characteristics of vegetation and soil properties under continuous grazing and exclusion of livestock for 5 and 10 years were examined in representative degraded sandy grassland. Continuous grazing resulted in a considerable decrease in ground cover, which accelerates soil erosion by wind, leading to a further coarseness in surface soil, loss of soil organic C and N, and a decrease in soil biological properties. The grassland under continuous grazing is in the stage of very strong degradation. Excluding livestock grazing enhances vegetation recovery, litter accumulation, and development of annual and perennial grasses. Soil organic C and total N concentrations, soil biological properties including some enzyme activities and basal soil respiration improved following 10-year exclusion of livestock, suggesting that degradation of the grassland is being reversed. The results suggest that excluding grazing livestock on the desertified sandy grassland in the erosion-prone Horqin region has a great potential to restore soil fertility, sequester soil organic carbon and improve biological activity. Soil restoration is a slow process although the vegetation can recover rapidly after removal of livestock. A viable option for sandy grassland management should be to adopt proper exclosure in a rotation grazing system in the initial stage of grassland degradation. (C) 2004 Elsevier B.V. All rights reserved.