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Mercruiser 165 leaking issue

Hello everyone!
I am new to the forum and am thankful there is a place to get most of my stupid questions answered! I have a 71 SeaRay with a Merc 165 I/O. Recently I changed my outdrive oil, than ran the boat out of water with water muffs. About a day later I went to throw a new felt washer on the outdrive drain plug and when some of the oil leaked out I noticed it was milky. So my question is this, I am getting water in the oil when running the boat out water, just using water muffs. Could this be a leak in the water pump housing or where is my best place to start looking?
 
could be...best bet is to pressure test it...
Thanks makomark. I will do that and see what I can find. Assuming it wont hold pressure, do you have any recommendations on what is a common cause of leaks on these older mercruiser MC1 outdrives? Forgive my questions for being rather elementary, I am just learning a lot of this stuff.
 
Thanks makomark. I will do that and see what I can find. Assuming it wont hold pressure, do you have any recommendations on what is a common cause of leaks on these older mercruiser MC1 outdrives? Forgive my questions for being rather elementary, I am just learning a lot of this stuff.
given the age of the drive I would bet all them need replacement.

given you ran it out of the water on muffs and got water in the oil this would point to the baseplate seal below the water pump impeller. Been a while since I had a MC-1/R/MR/Alpha gen one but I think the seal is in the plastic water pump base. There may be a gear oil seal below that on teh vertical driveshaft.

If you go here on this site and type in your drives serial number https://www.marineengine.com/parts/mercruiser-stern-drive/index.php

it will take you to the parts diagrams which are excellent, best in the parts business IMHO...

I think on the early MC-1s that have a flush ports or drain hole they use a different base, you may want to tear yours down first.

Pressure test is best use soapy water to find bubbles around the seals.
 
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