A composition of matter and a method of sealing a permeable formation is provided incorporating the composition to reduce or eliminate lost circulation in permeable formations. The composition comprises one or more sealing components, ranging in size from approximately 10 to approximately 750 microns, a wetting component, a viscosifier component and an activator or flocculant. A dry mixture of the components may be added directly from the bag to the drilling mud to the permeable formation and will not set up inside the drill string. The mixture will seal the formation in an aqueous or organic environment, thus removing the need to form a pill in a slugging pit prior to introduction. The mixture dewaters at a rapid rate without regard to the time and temperature required for curing agents or other additives. The mixture does not require additional agents such as defoamers, accelerators, retarders or spacers to dewater and set as a solid plug.