Underwater dispenser with a block above it dispensed TNT which stayed in the water, then destroyed its surroundings.
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Confirmed for 13w04a.
Attached brighter screenshots for easy viewing. Would you like me to remove the previous ones?

Confirmed in Release Candidate.
This also happens when the dispenser is facing sideways, but not when it's facing downwards. Also, the block in front is necessary.

It happens randomly in all conditions, be it flowing or still water, no matter how it is dispensed, block or not. It just happens sometimes.

As Victor said, it is a wider range of circumstances where this happens. Please update this to be slightly more generalized as TNT in water sometimes (most of the time for me) blows up blocks around it, not just when dispensed from an upwards dispenser with a block on top.
Lots of things that have been marked here as duplicates, where in actual fact this should have been marked under one of them as this only explains "part" of the bug.

I can duplicate this bug every time I make a TNT cannon. It seems to have to do with having enough fire power. For example, 1 block of TNT will not break any blocks underwater, but 5 will break blocks underwater.

Confirmed in 14w11b.
My TNT cannon randomly blows up when I use it with 6 TNT blocks (ignited with redstone during the same tick). Sometimes everything works fine, but sometimes the TNT just ignores the flowing water.
It did not happen with 1 or 2 TNT as far as I can tell.
I did not test 4 or 5.
EDIT : Further testing showed that the bug occurs with 3 TNT (11 explosions/30 tries), but is at least unlikely with 1 or 2 TNT (0/30 for both).
Fortunately I was in creative when I found this bug, I can't imagine my reaction if it destroyed half of a redstone device in survival...
Please fix this bug :'(

Still a problem in 14w18a
Problem is present in various scenarios where TNT is submerged in water. The effect is unreliable, but common.
Water is supposed to keep TNT from destroying blocks, however it is failing to do so. This renders numerous (almost all) cannon designs useless.
This issue needs updated as the problem occurs in a much broader range of situations than the original issue suggests. Many of the "duplicate" issues are more inclusive (and better written), and should be looked into.


Is this still a concern in the current Minecraft version 1.8.1 Prerelease 3 / Launcher version 1.5.3 or later? If so, please update the affected versions in order to best aid Mojang ensuring bugs are still valid in the latest releases/pre-releases.

Confirmed on 1.8.1-pre3.

Actually, this bug's description/title is wrong. The real bug is that tnt entity is actually in the dirt block but displayed above 1 block on client-side. Confirm this by running following command before TNT blows up :
/execute @e[type=PrimedTnt,r=5,c=1] ~ ~ ~ summon Chicken ~ ~ ~ {Invulnerable:1,NoAI:1}
The Chicken gets spawned in the block.
And see this video. Blocks don't get destroyed because TNT is actually in a obsidian block.

Would any mods mind to confirm my statement above and maybe assign this ticket to me? (Or resolve this as Invalid so I can create proper one)

Could someone update the title and description to reflect what is actually happening?

Actually, this bug's description/title is wrong. The real bug is that tnt entity is actually in the dirt block but displayed above 1 block on client-side.
Ya this is true. A TNT entity that is within a dirt block is of course going to blow up that dirt block, and be able to chain the explosion to other explode-able blocks around it. A TNT entity is not an item entity, so it's not going to get pushed to the side or anything, it's just going to sit inside that block until it explodes. The bug here is the visual TNT is getting displayed on top of the block instead of just visually staying inside of it.
This is what it looks like in-game: http://i.imgur.com/7aGyIry.png
But quickly logging out and opening MCEdit, you can see the TNT entity (red box) is sitting on top of the dispenser, within the obsidian block: http://i.imgur.com/i5OdLVP.png

Confirmed for 15w46a & 1.8.8
The TNTs are now visually inside the blocks in 15w46a. I don't know if that's intended or not.

That's the intended behaviour, is previously displayed wrong on the client, (see comment above) and thus wasn't inside water, but inside a diffrent block, so it destroys blocks

@unknown: Yes, I know. I wasn't clear enough with my comment. I meant that I don't know if this issue as a whole is working as intended, and I still don't. 🙂

it probably is working as intended with the setup shown in the attachments, as the tnt is in the block, and not in the water

It displays inside the block now?

Yes, see the gif of 15w46a attached by @unknown

Oh, I missed that. Thanks. Resolving as fixed and updating title.