The recently introduced damped Coulomb potential [Wolf, D.; Keblinski, P.; Phillpot, S. R.; Eggebrecht, J. J. Chem. Phys. 1999, 110, 8254] is analyzed and slightly modified to obtain a significant improvement of dielectric properties when applied to simulations of dipolar liquids. It is used in molecular dynamics simulations of TIP3P and SPC water models. The results are compared with simulations using Ewald summation and the CHARMM shifted-force potential. A transferable scheme for parametrization of damping constants and cutoff radii is given. With a cutoff distance of only 9 Angstrom, static properties such as average potential energy, particle density, and radial distribution functions, dynamic properties such as velocity autocorrelation function and dipole moment relaxation, and the dielectric constant are found to be in good agreement with the reference Ewald simulations.