After cerebral ischemia, disruption and subsequent reorganization of functional connections occur both locally and remote to the lesion. However, the unpredictable timing and extent of sensorimotor recovery reflects a gap in understanding of these underlying neural mechanisms. We aimed to identify the plasticity of alpha-band functional neural connections within the perilesional area and the predictive value of functional connectivity with respect to motor recovery of the upper extremity after stroke. Our results show improvements in upper extremity motor recovery in relation to distributed changes in MEG-based alpha band functional connectivity, both in the perilesional area and contralesional cortex. Motor recovery was found to be predicted by increased connectivity at baseline in the ipsilesional somatosensory area, supplementary motor area, and cerebellum, contrasted with reduced connectivity of contralesional motor regions, after controlling for age, stroke onset-time and lesion size. These findings support plasticity within a widely distributed neural network and define brain regions in which the extent of network participation predicts post-stroke recovery potential.