The genomic basis of cladogenesis and adaptive evolutionary change has intrigued biologists for decades. The unique insights from a genome-level perspective have revealed a striking pattern of conserved macrosynteny across huge evolutionary distances in animals, yet progress in many lineages has been hampered by the absence of genome-level data. Here, we show that the origin of Clitellata, a clade composed of most freshwater and all terrestrial species of the phylum Annelida, coincided with an unprecedented genome-wide scrambling event that resulted in massive loss of macrosynteny between marine annelids and clitellates. This complete breakdown of chromosome-level relationships on just one short branch is unlike any other known pattern of evolutionary genome rearrangement, and instead resembles chromosome shattering and reassembly seen in chromoanagenesis. These massive punctuated rearrangements included the formation of neocentromeres with newly-acquired transposable elements, and preceded a further period of genome-wide reshaping events including whole genome duplications and massive macrosyntenic reshuffling between clitellate lineages, potentially triggered by the loss of genes involved in genome stability or homeostasis of cell division. Notably, while these rearrangements broke short-range interactions observed between genes in marine annelids (including Hox), they were reformed as long-range interactions in clitellates. Our study provides evidence of punctuated genomic change via chromoanagenesis leading not only to the origin of a new animal lineage - a ‘hopeful monster’ - but also to adaptive genomic changes facilitating the colonisation of new habitats.