diff --git a/mercurial/hg.py b/mercurial/hg.py
--- a/mercurial/hg.py
+++ b/mercurial/hg.py
@@ -131,7 +131,10 @@ def clone(ui, source, dest=None, pull=Fa
     source = localpath(source)
 
     if os.path.exists(dest):
-        raise util.Abort(_("destination '%s' already exists") % dest)
+        if not os.path.isdir(dest):
+            raise util.Abort(_("destination '%s' already exists") % dest)
+        elif os.listdir(dest):
+            raise util.Abort(_("destination '%s' is not empty") % dest)
 
     class DirCleanup(object):
         def __init__(self, dir_):
diff --git a/tests/test-clone b/tests/test-clone
--- a/tests/test-clone
+++ b/tests/test-clone
@@ -60,4 +60,11 @@ echo % use --pull
 hg clone --pull a g
 hg -R g verify
 
+echo
+echo % clone to '.'
+mkdir h
+cd h
+hg clone ../a .
+cd ..
+
 exit 0
diff --git a/tests/test-clone-failure b/tests/test-clone-failure
--- a/tests/test-clone-failure
+++ b/tests/test-clone-failure
@@ -43,4 +43,10 @@ hg init
 cd ..
 hg clone q
 
+# destination directory not empty
+mkdir a 
+echo stuff > a/a
+hg clone q a
+echo $?
+
 true
diff --git a/tests/test-clone-failure.out b/tests/test-clone-failure.out
--- a/tests/test-clone-failure.out
+++ b/tests/test-clone-failure.out
@@ -4,9 +4,11 @@ abort: error: Connection refused
 255
 abort: repository a not found!
 255
-abort: destination '../a' already exists
+abort: Permission denied: ../a
 255
 abort: repository a not found!
 255
 destination directory: q
-abort: destination 'q' already exists
+abort: destination 'q' is not empty
+abort: destination 'a' is not empty
+255
diff --git a/tests/test-clone.out b/tests/test-clone.out
--- a/tests/test-clone.out
+++ b/tests/test-clone.out
@@ -50,3 +50,7 @@ checking manifests
 crosschecking files in changesets and manifests
 checking files
 2 files, 11 changesets, 11 total revisions
+
+% clone to .
+updating working directory
+2 files updated, 0 files merged, 0 files removed, 0 files unresolved