diff --git a/scripts/setlocalversion b/scripts/setlocalversion
index ef8729f48586..4d403844e137 100755
--- a/scripts/setlocalversion
+++ b/scripts/setlocalversion
@@ -86,12 +86,16 @@ scm_version()
 
 	# Check for mercurial and a mercurial repo.
 	if test -d .hg && hgid=`hg id 2>/dev/null`; then
-		tag=`printf '%s' "$hgid" | cut -s -d' ' -f2`
-
-		# Do we have an untagged version?
-		if [ -z "$tag" -o "$tag" = tip ]; then
-			id=`printf '%s' "$hgid" | sed 's/[+ ].*//'`
+		# Do we have an tagged version?  If so, latesttagdistance == 1
+		if [ "`hg log -r . --template '{latesttagdistance}'`" == "1" ]; then
+			id=`hg log -r . --template '{latesttag}'`
 			printf '%s%s' -hg "$id"
+		else
+			tag=`printf '%s' "$hgid" | cut -d' ' -f2`
+			if [ -z "$tag" -o "$tag" = tip ]; then
+				id=`printf '%s' "$hgid" | sed 's/[+ ].*//'`
+				printf '%s%s' -hg "$id"
+			fi
 		fi
 
 		# Are there uncommitted changes?