The anthropogenic activities resulted in degradation of various ecosystems leading toward changes in the floristic composition of the simple microscopic algae to highly complex plants. Keeping this into consideration, a detailed limnological study was conducted from March 2008 to February 2011 from four highly polluted sites of the Sawan River to assess the algal groups and their associated species through indicator species analysis (ISA) and hierarchical clustering. Species diversity, richness and evenness values of each group were calculated and abundance status of algal species was assigned based on species importance value index. Seasonal and annual variations in algal composition were assessed by using Multi-Response Permutation Procedure (MRPP). A total of 36 algal species belonged to five different phyla were recorded. On the basis of species average annual importance value index, 8 species were recognized as rare, 11 less common, 11 common and 6 as abundant. Canonical correspondence analysis showed that total observed variations in the species data were 0.9656 (constrained: 0.3897, unconstrained: 0.5759), thus explanatory variables contributed 40.36% variability. Water turbidity, electrical conductance and rainfall were observed as important explanatory variables; whereas least contribution was made by total dissolved solids and pH variables. On the basis of present findings, the Sawan River is recognized as wastewater and garbage disposal channel rather than a stabilized lotic natural freshwater source in the study area.