Actually the water level will decrease. A percentage of the water will be absorbed by the gas/ethanol mix. As an example, at 60 degrees F, up to 3.8 teaspoons (0.633 OZ) of water can be absorbed by a blend of 90% gasoline and 10% ethanol before it will phase separate. 100% gas will only absorb .15 teaspoons of water. So even 100 % gas would cause the water level to decrease a small amount.
http://www.epa.gov/otaq/regs/fuels/rfg/waterphs.pdf
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