The valorization of dredged sediments is a promising solution to reduce the strain on natural resources, which is in line with sustainable development goals. This study aims to evaluate the potential valorization of dredged sediment in manufacturing compressed earth blocks (CEBs). The CEBs were stabilized by a combination of fly ash (FA) with sodium hydroxide (NaOH). The stabilization was achieved by partial substitution of sediment for fly ash with six different percentages 10, 20, 30, 40, and 50% by weight. The CEBs samples were characterized in terms of structural, microstructural, mechanical, and thermal properties. The results showed that increasing FA content significantly improves the mechanical strength of CEBs, dry compressive strength ranges from 2.47 MPa to 9 MPa, whereas wet compressive strength ranges from 0.95 MPa to 6.9 MPa. The mechanical performance is related to the amount of alkali-activated fly ash gels, which bind the sediment grains and makes the CEBs more compact and resistant. The optimal dosage of alkali-activated fly ash to replace the sediment was between 10 and 20%. In this substitution range, mechanical performance and physical properties improved significantly. In addition, the thermal properties varied slightly with alkali-activated FA content.