A centrifugal pellet dryer (100) is shown having a dryer housing (110) with a top cover (115) and a pellet discharge port (132). A perforated rotating basket (112) is disposed within the dryer housing (110) is configured to rotate substantially about a rotational axis (R) to cause pellets to migrate from a closed portion (116) to an open portion (117) is substantially open to allow pellets to escape. A pellet slurry conduit (121) conveys a pellet slurry received at pellet slurry inlet port (118) through the top cover of the dryer housing (110) to the pellet slurry outlet port (120) disposed adjacent the closed portion of the rotating basket (112). A seal assembly (138) is mounted within the dryer housing (110) having water outlet opening and a motor shaft opening that is disposed to intersect the rotational axis, where the seal assembly permits the passage of pellets between the dryer housing and the seal assembly. A water baffle (134) is coupled to the seal assembly (138) to form a water chamber that encloses the rotating basket (112) except for the open portion (117). A water outlet return (136) is coupled to the water outlet opening of the seal assembly (138). A pellet deflector (128) is disposed within the dryer housing (110) and in communication with the open portion (117) of the rotating basket (112) to form a pellet chamber within the dryer housing (110) that is external to the water chamber and in communication with the pellet discharge port (132).