diff --git a/mercurial/url.py b/mercurial/url.py
--- a/mercurial/url.py
+++ b/mercurial/url.py
@@ -180,6 +180,7 @@
             if not proxyuser:
                 proxyuser = ui.config("http_proxy", "user")
                 proxypasswd = ui.config("http_proxy", "passwd")
+            proxypasswd = urllib.quote(proxypasswd or '', safe='')
 
             # see if we should use a proxy for this url
             no_list = ["localhost", "127.0.0.1"]
@@ -196,7 +197,7 @@
 
             proxyurl = urlparse.urlunsplit((
                 proxyscheme, netlocunsplit(proxyhost, proxyport,
-                                                proxyuser, proxypasswd or 
''),
+                                                proxyuser, proxypasswd),
                 proxypath, proxyquery, proxyfrag))
             proxies = {'http': proxyurl, 'https': proxyurl}
             ui.debug('proxying through http://%s:%s\n' %