Index: src/water_cmd.cpp
===================================================================
--- src/water_cmd.cpp	(revision 12032)
+++ src/water_cmd.cpp	(working copy)
@@ -108,12 +108,6 @@
 	/* Mark tile dirty in all cases */
 	MarkTileDirtyByTile(t);
 
-	/* Non-sealevel -> canal */
-	if (TileHeight(t) != 0) {
-		MakeCanal(t, o, Random());
-		return;
-	}
-
 	bool has_water = false;
 	bool has_canal = false;
 
@@ -121,7 +115,7 @@
 		TileIndex neighbour = TileAddByDiagDir(t, dir);
 		switch (GetTileType(neighbour)) {
 			case MP_WATER:
-				has_water |= IsSea(neighbour) || IsCoast(neighbour) || (IsShipDepot(neighbour) && GetShipDepotWaterOwner(neighbour) == OWNER_WATER);
+				has_water |= IsRiver(neighbour) || IsSea(neighbour) || IsCoast(neighbour) || (IsShipDepot(neighbour) && GetShipDepotWaterOwner(neighbour) == OWNER_WATER);
 				has_canal |= IsCanal(neighbour) || (IsShipDepot(neighbour) && GetShipDepotWaterOwner(neighbour) != OWNER_WATER);
 				break;
 
@@ -138,6 +132,7 @@
 			default: break;
 		}
 	}
+
 	if (has_canal || !has_water) {
 		MakeCanal(t, o, Random());
 	} else {