In recent years, multiphase pumps have become more and more popular because of the capability to simplify the process, reduce the footprint, and lower the cost. To compensate for the axial thrust force, an annular seal is normally used as a balance piston seal, and the labyrinth seal is one of the choices. A typical labyrinth seal consists of a surface with teeth and a smooth surface. The teeth are either on the rotor or the stator. To protect the machine, one side (either the teeth or the smooth surface) is made of a material that can be safely sacrificed during a rub. After the rub, the teeth clearance is increased. This paper studies the impact of the increased teeth clearance on the performance of the labyrinth seal under oil-rich bubbly flow conditions. The test fluid is a mixture of silicone oil (PSF 5cSt) and air with inlet Gas Volume Fraction GVF up to 9%. Tests are conducted with pressure drop PD = 34.5 bars, rotor speed ω = 5 krpm, and radial tooth clearance Cr = 0.102 mm and 0.178 mm. Test results show that, for all test conditions (before and after injecting air bubbles into the oil flow), increasing Cr from 0.102 mm to 0.178 mm increases the mass flow rate by about 40% but barely changes the test seal’s rotordynamic coefficients; i.e., the increased tooth clearance would not change the pump vibration performance.