If a mangrove propagule is placed on a mud block deep enough underwater, then the mangrove tree will grow submerged under the water.
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Yes they can but I would have at least expected the leaves to have reached above the water or for it to not grow at all for being too deep.
"Propagules can be grown underwater" from the Wild Update Changelog
What makes you think that this is a bug? Mangrove propagules can even be placed underwater.