diff --git a/rhodecode/lib/vcs/backends/hg/repository.py b/rhodecode/lib/vcs/backends/hg/repository.py
--- a/rhodecode/lib/vcs/backends/hg/repository.py
+++ b/rhodecode/lib/vcs/backends/hg/repository.py
@@ -368,26 +368,32 @@ class MercurialRepository(BaseRepository
         be created.
 
         If `src_url` is given, would try to clone repository from the
-        location at given clone_point. Additionally it'll make update to
+        location at given clone_point. Additionally, it'll make update to
         working copy accordingly to `do_workspace_checkout` flag.
         """
         if create and os.path.exists(self.path):
             raise RepositoryError(
                 f"Cannot create repository at {self.path}, location already exist")
 
-        if src_url:
-            url = str(self._get_url(src_url))
-            MercurialRepository.check_url(url, self.config)
+        if create:
+            if src_url:
+                url = str(self._get_url(src_url))
+                MercurialRepository.check_url(url, self.config)
 
-            self._remote.clone(url, self.path, do_workspace_checkout)
+                self._remote.clone(url, self.path, do_workspace_checkout)
 
-            # Don't try to create if we've already cloned repo
-            create = False
+                # Don't try to create if we've already cloned repo
+                create = False
+                self._remote.localrepository(create)
+            else:
+                os.makedirs(self.path, mode=0o755)
+                create = True
+                self._remote.localrepository(create)
 
-        if create:
-            os.makedirs(self.path, mode=0o755)
-
-        self._remote.localrepository(create)
+        else:
+            if not self._remote.assert_correct_path():
+                raise RepositoryError(
+                    f'Path "{self.path}" does not contain a Mercurial repository')
 
     @LazyProperty
     def in_memory_commit(self):