Sauté onion in butter in a large Dutch oven until tender; add potatoes, salt, pepper, and water. Bring to a boil. Reduce heat; cover and simmer 20 minutes or until potatoes are tender.
Combine milk and cheese in a small saucepan. Cook over low heat, stirring frequently, until cheese melts and mixture is well blended. Stir milk mixture and clams into potato mixture in Dutch oven. Continue to cook over medium heat until chowder is thoroughly heated.
Ladle into individual serving bowls, and garnish with parsley.