It is well known that geomaterials such as soils exhibit an increase in volume during shearing deformation, referred to as dilatancy. Dilatancy is a typical property of such granular materials as soils and is closely related to changes in the microstructure. Normally consolidated clay exhibits negative dilatancy or contractancy, namely, a decrease in volume during shearing. On the other hand, overconsolidated clay shows positive dilatancy, namely, an increase in volume during shearing. The aim of the present paper is to study the effects of the microstructure, such as dilatancy and permeability, on the strain localization of water-saturated clay using an elasto-viscoplastic constitutive model. Based on the non-linear kinematic hardening theory and a Chaboche type of viscoplasticity model, an elasto-viscoplastic model for both normally consolidated and overconsolidated clays is proposed; the model can address both negative and positive dilatancies. Firstly, the instability of the model under undrained creep conditions is analyzed in terms of the accelerating creep failure. The analysis shows that clay with positive dilatancy is more unstable than clay with negative dilatancy. Secondly, a finite element analysis of the deformation of water-saturated clay is presented with focus on the numerical results under plane strain conditions. From the present numerical analysis, it is found that both dilatancy and permeability prominently affect shear strain localization behavior. (C) 2002 Elsevier Science Ltd. All rights reserved.