diff --git a/mercurial/cmdutil.py b/mercurial/cmdutil.py
--- a/mercurial/cmdutil.py
+++ b/mercurial/cmdutil.py
@@ -10,7 +10,7 @@ from i18n import _
 import os, sys, errno, re, tempfile, cStringIO, shutil
 import util, scmutil, templater, patch, error, templatekw, revlog, copies
 import match as matchmod
-import repair, graphmod, revset, phases, obsolete, pathutil, changegroup
+import repair, graphmod, revset, phases, obsolete, pathutil
 import changelog
 import bookmarks
 import encoding
@@ -3331,19 +3331,50 @@ class dirstateguard(object):
                 raise util.Abort(msg)
             self._abort()
 
-def parsebundletype(bundletype):
+_bundlecompspecs = {'none': None,
+                    'bzip2': 'BZ',
+                    'gzip': 'GZ',
+                   }
+
+_bundleversionspecs = {'v1': '01',
+                       'v2': '02',
+                       'bundle2': '02', #legacy
+                      }
+
+def parsebundletype(repo, spec):
     """return the internal bundle type to use from a user input
 
     This is parsing user specified bundle type as accepted in:
 
         'hg bundle --type TYPE'.
+
+    It accept format in the form [compression][-version]|[version]
     """
-    btypes = {'none': 'HG10UN',
-              'bzip2': 'HG10BZ',
-              'gzip': 'HG10GZ',
-              'bundle2': 'HG20'}
-    bundletype = btypes.get(bundletype)
-    if bundletype not in changegroup.bundletypes:
+    comp, version = None, None
+
+    if '-' in spec:
+        comp, version = spec.split('-', 1)
+    elif spec in _bundlecompspecs:
+        comp = spec
+    elif spec in _bundleversionspecs:
+        version = spec
+    else:
         raise util.Abort(_('unknown bundle type specified with --type'))
-    return bundletype
-
+
+    if comp is None:
+        comp = 'BZ'
+    else:
+        try:
+            comp = _bundlecompspecs[comp]
+        except KeyError:
+            raise util.Abort(_('unknown bundle type specified with --type'))
+
+    if version is None:
+        version = '01'
+    else:
+        try:
+            version = _bundleversionspecs[version]
+        except KeyError:
+            raise util.Abort(_('unknown bundle type specified with --type'))
+
+    return version, comp
diff --git a/mercurial/commands.py b/mercurial/commands.py
--- a/mercurial/commands.py
+++ b/mercurial/commands.py
@@ -1219,9 +1219,11 @@ def bundle(ui, repo, fname, dest=None, *
     parameters. To create a bundle containing all changesets, use
     -a/--all (or --base null).
 
-    You can change compression method with the -t/--type option.
-    The available compression methods are: none, bzip2, and
-    gzip (by default, bundles are compressed using bzip2).
+    You can change bundle format with the -t/--type option. You can
+    specify a compression, a bundle version or both using a dash
+    (comp-version). The available compression methods are: none, bzip2,
+    and gzip (by default, bundles are compressed using bzip2). The
+    available format are: v1, v2 (default to v1).
 
     The bundle file can then be transferred using conventional means
     and applied to another repository with the unbundle or pull
@@ -1238,7 +1240,7 @@ def bundle(ui, repo, fname, dest=None, *
         revs = scmutil.revrange(repo, opts['rev'])
 
     bundletype = opts.get('type', 'bzip2').lower()
-    bundletype = cmdutil.parsebundletype(bundletype)
+    cgversion, bcompression = cmdutil.parsebundletype(repo, bundletype)
 
     if opts.get('all'):
         base = ['null']
@@ -1253,7 +1255,8 @@ def bundle(ui, repo, fname, dest=None, *
         common = [repo.lookup(rev) for rev in base]
         heads = revs and map(repo.lookup, revs) or revs
         cg = changegroup.getchangegroup(repo, 'bundle', heads=heads,
-                                         common=common, bundlecaps=bundlecaps)
+                                         common=common, bundlecaps=bundlecaps,
+                                         version=cgversion)
         outgoing = None
     else:
         dest = ui.expandpath(dest or 'default-push', dest or 'default')
@@ -1266,12 +1269,22 @@ def bundle(ui, repo, fname, dest=None, *
                                                 force=opts.get('force'),
                                                 portable=True)
         cg = changegroup.getlocalchangegroup(repo, 'bundle', outgoing,
-                                             bundlecaps)
+                                                bundlecaps, version=cgversion)
     if not cg:
         scmutil.nochangesfound(ui, repo, outgoing and outgoing.excluded)
         return 1
 
-    changegroup.writebundle(ui, cg, fname, bundletype)
+    if cgversion == '01': #bundle1
+        if bcompression is None:
+            bcompression = 'UN'
+        bversion = 'HG10' + bcompression
+        bcompression = None
+    else:
+        assert cgversion == '02'
+        bversion = 'HG20'
+
+
+    changegroup.writebundle(ui, cg, fname, bversion, compression=bcompression)
 
 @command('cat',
     [('o', 'output', '',
diff --git a/tests/test-bundle-type.t b/tests/test-bundle-type.t
--- a/tests/test-bundle-type.t
+++ b/tests/test-bundle-type.t
@@ -29,7 +29,7 @@ bundle w/o type option
 
 test bundle types
 
-  $ for t in "None" "bzip2" "gzip"; do
+  $ for t in "None" "bzip2" "gzip" "none-v2" "v2" "v1" "gzip-v1"; do
   >   echo % test bundle type $t
   >   hg init t$t
   >   cd t1
@@ -58,6 +58,34 @@ test bundle types
   HG10GZ
   c35a0f9217e65d1fdb90c936ffa7dbe679f83ddf
   
+  % test bundle type none-v2
+  searching for changes
+  1 changesets found
+  HG20\x00\x00 (esc)
+  Stream params: {}
+  changegroup -- "{'version': '01'}"
+      c35a0f9217e65d1fdb90c936ffa7dbe679f83ddf
+  
+  % test bundle type v2
+  searching for changes
+  1 changesets found
+  HG20\x00\x00 (esc)
+  Stream params: {'Compression': 'BZ'}
+  changegroup -- "{'version': '01'}"
+      c35a0f9217e65d1fdb90c936ffa7dbe679f83ddf
+  
+  % test bundle type v1
+  searching for changes
+  1 changesets found
+  HG10BZ
+  c35a0f9217e65d1fdb90c936ffa7dbe679f83ddf
+  
+  % test bundle type gzip-v1
+  searching for changes
+  1 changesets found
+  HG10GZ
+  c35a0f9217e65d1fdb90c936ffa7dbe679f83ddf
+  
 
 test garbage file