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Overgrazing has caused serious grassland soil deterioration and significant soil organic carbon (SOC) losses. Controlled grazing is recommended for restoring grassland and enhancing SOC stocks. Studies have suggested that, in particular, labile organic carbon (C) is a sensitive indicator for soil degradation and SOC recovery, but few studies of the effect of different grassland management practices have been published so far. Here, we investigate the effects of long‐term grazing exclusion and short‐term rotational grazing with different grazing intensities on labile SOC, including hot water extractable organic C (HWEC) and particulate organic C (POC), as well as potential N mineralization (Nmin) rate in soils (0–10 cm) of two grasslands in Xilinhot, Inner Mongolia. Treatments include long‐term (34 years) exclusion, medium‐term (21 years) exclusion and continuous grazing (ambient grazing) at one of the sites, and we investigate no grazing, light grazing, moderate grazing and high‐grazing intensity at the study site for rotational grazing. Our results show that grazing exclusion significantly enhances labile SOC stocks and potential Nmin rate compared to ambient grazing (e.g., POC stock at long‐ and medium‐term exclusion and ambient grazing are 5.71 ± 0.94 Mg C ha−1, 3.25 ± 0.30 Mg C ha−1 and 2.12 ± 0.38 Mg C ha−1, respectively). However, after two decades of exclusion, the potential for further C sequestration is limited. Five years of rotational grazing significantly enhances HWEC, but not POC and potential Nmin rate, when comparing the highest grazing intensity (1.88 sheep ha−1 yr−1) with grazing exclusion during the same period. We conclude that rotational grazing may be a viable alternative to exclusion, offering a more rational use of grassland without causing soil C loss. We also show that HWEC is a particularly sensitive labile SOC indicator and is tightly correlated to POC and potential Nmin rate. Highlights: We investigated effects of grazing exclusion and rotational grazing on labile soil organic carbon.Grazing exclusion increased labile SOC and the highest level appeared in medium‐term exclusion.Five years of high‐intensity rotational grazing increased HWEC with no significant effects on POC.Rotational grazing is a viable alternative to grazing exclusion management. [ABSTRACT FROM AUTHOR]