We present a new semiempirical molecular orbital method based on neglect of diatomic differential overlap. This method differs from previous NDDO-based methods in that we include p orbitals on hydrogen atoms to provide a more realistic modeling of polarizability. As in AM1-D and PM3-D, we also include damped dispersion. The formalism is based on the original MNDO one, but in the process of parametrization we make some specific changes to some of the functional forms. The present article is a demonstration of the capability of the new approach, and it presents a successful parametrization for compounds composed only of hydrogen and oxygen atoms, including the important case of water clusters.