Just found this out & not sure if it's a glitch or supposed to be this way, guessing it's supposed to be this way as you can build items in the water. Anyway after picking this up & figuring it might be interesting for a while to see how far you can explore in it I ran across a cave that had some water in a part of it. I started placing a dirt block over a part of the water to just get across it & as you can place a few blocks a row below you I just layered the area. From there I started digging a little while later while stuck & found that the water tile was completely gone. Once realized this I went back to one of the lake areas right of the starting town/spawn point, with once full stack of dirt I proceeded to build a layer above me to keep the bad things away, then start laying dirt down below on the edge of the water. Proceed to just layer the area below this section on the floor with more dirt to remove the water, then go back across removing all but the bottom layer of dirt, then repeat until the water is gone. 
 
Yes I got tired of wasting money (as I've not found a way yet to craft bombs) on buying bombs.