Internal erosional behaviour of lignosulfonate treated dispersive clay has been studied using the Process Simulation Apparatus for Internal Crack Erosion (PSAICE) designed and built at UOW. Effectiveness of lignosulfonate treated dispersive clay on the erosion resistance has been investigated and its advantage over traditional admixtures is presented. Test results show that the hydraulic shear stress increases with increase in the amount of lignosulfonate. In addition, the micro-chemical analysis has been carried out using FTIR. Based on the Fourier Transform Infrared (FTIR) Spectroscopy results a stabilization mechanism has been proposed for lignosulfonate treated dispersive soil.