Developing socially acceptable, environmentally friendly, and financially viable asset management plans (AMPs) is a major challenge for water and wastewater utilities and calls for a comprehensive Sustainability Assessment (SA). This paper proposes a novel framework that applies System Dynamics and Life Cycle Assessment tools to evaluate the long‐term sustainability of strategic asset management decisions for water and wastewater infrastructure systems. The merit of the proposed framework in dealing with the non‐linearity and dynamic behavior of the socio‐economic systems and its utility for SA of strategic asset management decisions are demonstrated in a case study of a Wastewater Collection (WWC) network system. Furthermore, the significant importance of population growth and urban densification policies in sustainability of AMP are highlighted by comparing four alternative scenarios of (1) 100% urban densification, (2) 0% urban densification, (3) 50% densification, and (4) no population growth in the case study. The results of the case study show that the greenhouse gas emission, operational and capital expenses, and bill burden of WWC and treatment services significantly reduce with urban densification.