The relative importance of regional processes inside the Arctic climate system and the large scale atmospheric circulation for Arctic interannual climate variability has been estimated with the help of a regional Arctic coupled ocean-ice-atmosphere model. The study focuses on sea ice and surface climate during the 1980s and 1990s. Simulations agree reasonably well with observations. Correlations between the winter North Atlantic Oscillation index and the summer Arctic sea ice thickness and summer sea ice extent are found. Spread of sea ice extent within an ensemble of model runs can be associated with a surface pressure gradient between the Nordic Seas and the Kara Sea. Trends in the sea ice thickness field are widely significant and can formally be attributed to large scale forcing outside the Arctic model domain. Concerning predictability, results indicate that the variability generated by the external forcing is more important in most regions than the internally generated variability. However, both are in the same order of magnitude. Local areas such as the Northern Greenland coast together with Fram Straits and parts of the Greenland Sea show a strong importance of internally generated variability, which is associated with wind direction variability due to interaction with atmospheric dynamics on the Greenland ice sheet. High predictability of sea ice extent is supported by north-easterly winds from the Arctic Ocean to Scandinavia.