Huge disk space usage increase when altering a column
SQL Server will create a new column, copy the data over, and drop the old column. The table will increase in space by some factor larger than just the size of the new or old column and/or the average or max length of the data. The reason is that temporarily the copy of the data for all rows on a page can't possibly fit on the page, so many new pages will have to be generated.

It doesn't reclaim this space after dropping the column. In order to reclaim the space, you'll need to rebuild the table / clustered index.