Weathered Red mudstone is widely distributed in Sichuan basin. The compacted weathered red mudstone has been used as subgrade fill materials of high-speed railway in southwestern of China. Dynamic responses of such materials under cyclic loading are critical to long-term stability of subgrade. Shakedown concept is widely employed in characterizing the permanent deformation behavior of soils. According to the evolution of axial strain (Werkmeister’s theory) or unit dissipated energy (Tao’s theory) with loading cycles, the behavior of unbound granular materials can be classified into three categories: plastic shakedown, plastic creep and incremental collapse. However, both theories are more suitable for the unbound granular materials with some limitations when used to separate the plastic creep and incremental collapse behavior. To overcome the limitations of the current theories, 26 cyclic triaxial tests were conducted on a saturated fully weathered red mudstone (SFWRM) to study the evolution of axial strain and unit dissipated energy during cyclic loading. A clear dependency of axial strain, axial strain rate on the unit dissipated energy level under various cyclic stress states were observed. A new criterion which is based on the responses of unit dissipated energy with cyclic stress ratio, was proposed to determine the limit between plastic creep and incremental collapse. Comparing with Werkmeister’s criterion and Tao’s criterion, the proposed criterion showed a better performance in identifying the incremental collapse behavior of the SFWRM.