The labyrinth seal is one of the most popular noncontact annular seals used in centrifugal compressors to improve machine efficiency by reducing the secondary flow leakage. Reducing the radial clearance Cr can effectively decrease the seal's leakage and therefore increase the machine efficiency. However, reducing Cr can also introduce undesired effects on the machine's vibration behaviors. This paper experimentally studies the impact of reducing Cr on the leakage and rotordynamic coefficients of a 16-tooth see-through labyrinth seal under wet-gas conditions. The test seal's inner diameter is 89.256 mm. Two rotors with different diameters are used to obtain two radial clearances (0.102 mm and 0.178 mm). Tests are carried out at a supply pressure of 62 bars, three speeds from 10 krpm to 20 krpm, three pressure ratios from 0.21 to 0.46, and six inlet liquid volume fractions (LVFs) from zero to 15%. The test fluid is a mixture comprised of air and silicon oil. Test results show that, for all pure-air and mainly air conditions, decreasing Cr decreases (as expected) the test seal's leakage mass flowrate. For all test cases, direct dynamic stiffness KΩ is negative, producing a negative centering force on the associated rotor. For inlet LVF ≤ 8%, the effects of decreasing Cr on KΩ are negligible. When inlet LVF = 12% and 15%, decreasing Cr increases KΩ (decreases the magnitude). In other words, when inlet LVF = 12% and 15%, decreasing Cr reduces the test seal's negative centering force on the rotor, and would increase the critical speeds of the rotor. The value of the effective damping Ceff near 0.5ω represents the seal's capability to suppress the rotor's potential whirling motion at about 0.5ω. For all pure-air and mainly air conditions, decreasing Cr generally increases the Ceff value near 0.5ω; i.e., decreasing Cr improves the test seal's stabilizing capability against the rotor's potential whirling motion at about 0.5ω.