Pall shrinking around lake (4)
I believe the answer is:
cloy
'pall' is the definition.
('cloy' can be a synonym of 'pall')
'shrinking around lake' is the wordplay.
'shrinking' becomes 'coy' (both can mean shy).
'around' means one lot of letters goes inside another.
'lake' becomes 'l'.
'coy' enclosing 'l' is 'CLOY'.
(Other definitions for cloy that I've seen before include "Weary with excess" , "Cause distaste by excessive sweetness" , "Be disgustingly rich" , "Cause distaste by being too sweet or rich" , "Annoy through excessive sweetness" .)