diff --git a/dock_gui.c b/dock_gui.c
--- a/dock_gui.c
+++ b/dock_gui.c
@@ -151,7 +151,7 @@ static void BuildDocksToolbWndProc(Windo
 			if ((e->place.userdata & 0xF) == VPM_X_AND_Y) { // dragged actions
 				GUIPlaceProcDragXY(e);
 			} else if (e->place.userdata == VPM_X_OR_Y) {
-				DoCommandP(e->place.tile, e->place.starttile, 0, CcBuildCanal, CMD_BUILD_CANAL | CMD_AUTO | CMD_MSG(STR_CANT_BUILD_CANALS));
+				DoCommandP(e->place.tile, e->place.starttile, _ctrl_pressed, CcBuildCanal, CMD_BUILD_CANAL | CMD_AUTO | CMD_MSG(STR_CANT_BUILD_CANALS));
 			}
 		}
 		break;
diff --git a/lang/english.txt b/lang/english.txt
--- a/lang/english.txt
+++ b/lang/english.txt
@@ -1159,7 +1159,7 @@ STR_TREES_RANDOM_TYPE                   
 STR_TREES_RANDOM_TYPE_TIP                                       :{BLACK}Place trees of random type
 
 STR_CANT_BUILD_CANALS                                           :{WHITE}Can't build canals here...
-STR_BUILD_CANALS_TIP                                            :{BLACK}Build canals
+STR_BUILD_CANALS_TIP                                            :{BLACK}Build canals. Press CTRL to place sea tiles (at sea-level only.)
 STR_LANDINFO_CANAL                                              :Canal
 
 STR_CANT_BUILD_LOCKS                                            :{WHITE}Can't build locks here...
diff --git a/terraform_gui.c b/terraform_gui.c
--- a/terraform_gui.c
+++ b/terraform_gui.c
@@ -110,7 +110,7 @@ bool GUIPlaceProcDragXY(const WindowEven
 		GenerateDesertArea(end_tile, start_tile);
 		break;
 	case GUI_PlaceProc_WaterArea >> 4:
-		DoCommandP(end_tile, start_tile, 0, CcBuildCanal, CMD_BUILD_CANAL | CMD_AUTO | CMD_MSG(STR_CANT_BUILD_CANALS));
+		DoCommandP(end_tile, start_tile, _ctrl_pressed, CcBuildCanal, CMD_BUILD_CANAL | CMD_AUTO | CMD_MSG(STR_CANT_BUILD_CANALS));
 		break;
 	default: return false;
 	}
diff --git a/tunnelbridge_cmd.c b/tunnelbridge_cmd.c
--- a/tunnelbridge_cmd.c
+++ b/tunnelbridge_cmd.c
@@ -637,7 +637,7 @@ static int32 DoClearBridge(TileIndex til
 				MarkTileDirtyByTile(tile);
 			}
 			return cost;
-		} else if (IsWaterUnderBridge(tile) && TilePixelHeight(tile) != 0) {
+		} else if (IsWaterUnderBridge(tile) && !IsTileOwner(tile, OWNER_WATER)) {
 			/* delete canal under bridge */
 
 			// check for vehicles under bridge
@@ -710,7 +710,11 @@ static int32 DoClearBridge(TileIndex til
 					DoClearSquare(c);
 				} else {
 					if (GetTileSlope(c, NULL) == SLOPE_FLAT) {
-						MakeWater(c);
+						if (IsTileOwner(c, OWNER_WATER)) {
+							MakeWater(c);
+						} else {
+							MakeCanal(c, GetTileOwner(c));
+						}
 					} else {
 						MakeShore(c);
 					}
@@ -1030,7 +1034,7 @@ static void DrawTile_TunnelBridge(TileIn
 				} else {
 					if (ti->tileh == SLOPE_FLAT) {
 						DrawGroundSprite(SPR_FLAT_WATER_TILE);
-						if (ti->z != 0) DrawCanalWater(ti->tile);
+						if (ti->z != 0 || !IsTileOwner(ti->tile, OWNER_WATER)) DrawCanalWater(ti->tile);
 					} else {
 						DrawGroundSprite(_water_shore_sprites[ti->tileh]);
 					}
diff --git a/water_cmd.c b/water_cmd.c
--- a/water_cmd.c
+++ b/water_cmd.c
@@ -200,7 +200,7 @@ int32 CmdBuildLock(TileIndex tile, uint3
 /** Build a piece of canal.
  * @param tile end tile of stretch-dragging
  * @param p1 start tile of stretch-dragging
- * @param p2 unused
+ * @param p2 ctrl pressed - toggles ocean / canals at sealevel
  */
 int32 CmdBuildCanal(TileIndex tile, uint32 flags, uint32 p1, uint32 p2)
 {
@@ -234,7 +234,7 @@ int32 CmdBuildCanal(TileIndex tile, uint
 		}
 
 		// can't make water of water!
-		if (IsTileType(tile, MP_WATER)) continue;
+		if (IsTileType(tile, MP_WATER) && (!IsTileOwner(tile, OWNER_WATER) || HASBIT(p2, 0))) continue;
 
 		/* is middle piece of a bridge? */
 		if (IsBridgeTile(tile) && IsBridgeMiddle(tile)) {
@@ -242,10 +242,10 @@ int32 CmdBuildCanal(TileIndex tile, uint
 				return_cmd_error(STR_5800_OBJECT_IN_THE_WAY);
 			}
 
-			if (IsWaterUnderBridge(tile)) return_cmd_error(STR_1007_ALREADY_BUILT);
+			if (IsWaterUnderBridge(tile) && (!IsTileOwner(tile, OWNER_WATER) || HASBIT(p2, 0))) return_cmd_error(STR_1007_ALREADY_BUILT);
 
 			if (flags & DC_EXEC) {
-				if (TileHeight(tile) == 0) {
+				if (TileHeight(tile) == 0 && HASBIT(p2, 0)) {
 					SetWaterUnderBridge(tile);
 				} else {
 					SetCanalUnderBridge(tile, _current_player);
@@ -259,7 +259,7 @@ int32 CmdBuildCanal(TileIndex tile, uint
 			cost += ret;
 
 			if (flags & DC_EXEC) {
-				if (TileHeight(tile) == 0) {
+				if (TileHeight(tile) == 0 && HASBIT(p2, 0)) {
 					MakeWater(tile);
 				} else {
 					MakeCanal(tile, _current_player);
@@ -352,7 +352,18 @@ static bool IsWateredTile(TileIndex tile
 {
 	switch (GetTileType(tile)) {
 		case MP_WATER:
-			return !IsCoast(tile);
+			if (!IsCoast(tile)) return true;
+
+			switch (GetTileSlope(tile, NULL)) {
+				case SLOPE_W:
+				case SLOPE_S:
+				case SLOPE_E:
+				case SLOPE_N:
+					return true;
+
+				default:
+					return false;
+			}
 
 		case MP_STATION:
 			return IsOilRig(tile) || IsDock(tile) || IsBuoy_(tile);
@@ -436,7 +447,7 @@ static void DrawTile_Water(TileInfo *ti)
 	switch (GetWaterTileType(ti->tile)) {
 		case WATER_CLEAR:
 			DrawGroundSprite(SPR_FLAT_WATER_TILE);
-			if (ti->z != 0) DrawCanalWater(ti->tile);
+			if (ti->z != 0 || !IsTileOwner(ti->tile, OWNER_WATER)) DrawCanalWater(ti->tile);
 			break;
 
 		case WATER_COAST:
@@ -487,7 +498,7 @@ static void GetTileDesc_Water(TileIndex 
 {
 	switch (GetWaterTileType(tile)) {
 		case WATER_CLEAR:
-			if (TilePixelHeight(tile) == 0) {
+			if (TilePixelHeight(tile) == 0 || IsTileOwner(tile, OWNER_WATER)) {
 				td->str = STR_3804_WATER;
 			} else {
 				td->str = STR_LANDINFO_CANAL;
@@ -642,6 +653,9 @@ void TileLoop_Water(TileIndex tile)
 		{{ 0, -1}, {0, 0}, {1, 0}, { 0, -1}, { 1, -1}}
 	};
 
+	/* Ensure sea-level canals do not flood */
+	if (!IsTileOwner(tile, OWNER_WATER)) return;
+
 	if (IS_INT_INSIDE(TileX(tile), 1, MapSizeX() - 3 + 1) &&
 			IS_INT_INSIDE(TileY(tile), 1, MapSizeY() - 3 + 1)) {
 		uint i;