Clearance always exists between the rotating impeller shrouds and the stationary casing covers in shrouded centrifugal pumps, which affects the pump internal flow and performance. Model tests were conducted for a shrouded centrifugal pump with back blades on the front shroud, and the performance parameters were obtained for three different impeller axial positions. Adjusting the impeller axial position can change the axial size of both the front and back clearances simultaneously. The results show that a tiny variation of the axial clearance size can substantially change the pump performance. A large front clearance reduces the pump efficiency and head with little change in the shaft power. Numerical simulations for a wide range of operating conditions for the three models with different impeller axial positions using the Reynolds-Averaged Navier–Stokes (RANS) with shear stress transport (SST) k–ω turbulence model agree well with the experimental results. The numerical results show how the clearance flow interfere with the main flow as the axial clearance is varied. The change in the pump hydraulic efficiency, volumetric efficiency, and mechanical efficiency was analyzed for various clearances. The hydraulic efficiency is the lowest one of the three kinds of efficiency and changes dramatically as the flow rate increases; thus, the hydraulic efficiency plays a decisive role in the pump performance. The volumetric efficiency is most sensitive to the axial clearance, which obviously decreases as the front clearance is increased. Therefore, the volumetric efficiency is the key factor for the change of the gross efficiency as the axial clearance changes. The mechanical loss varies little with changes in both axial clearance and flow rate so the mechanical efficiency can be regarded as a constant. The effect of axial clearances on the efficiency of shrouded centrifugal pumps should be considered to enable more efficient designs.