Globally, urbanization dramatically undermines ecosystem services (ESs). How to relieve the disturbance of urbanization level (UL) on ESs has become an urgent issue for achieving regional sustainable development. However, the lack of understanding about the linear, nonlinear, spatial, and non-spatial relationships between UL and ESs limits effective ecologically related policymaking and urban planning. This study attempts to identify the spatial effects of UL on ESs with an integrated spatial panel approach by decomposing the spatial autocorrelation and spatial spillover effects at multiscales into direct, indirect, and total effects in the Middle Reaches of the Yangtze River Urban Agglomerations (MRYRUA) of China. A considerable increase was observed in construction land, while an evident decline was observed in cultivated land and forestland from 1995 through 2015. Significant negative spatial autocorrelation was found between UL and ESs. The dominant spatial clustering patterns in MRYRUA were the low–high type (low UL and high comprehensive ESs index) and high–low type (high UL and low comprehensive ESs index). A U-shaped curve between UL and ESs was identified, and UL was found to be negatively associated with ESs in MRYRUA. The negative and indirect effect of UL on ESs suggests that being surrounded by highly urbanized units imposed a negative impact on ESs in the individual unit. Findings from this study provide important implications on alleviating adverse ESs for urban planners and decision makers in fast-growing urban agglomerations worldwide.