diff --git a/system/libraries/Image_lib.php b/system/libraries/Image_lib.php
index 3975370..1577887 100644
--- a/system/libraries/Image_lib.php
+++ b/system/libraries/Image_lib.php
@@ -1201,6 +1201,13 @@
 			imagecopymerge($src_img, $wm_img, $x_axis, $y_axis, 0, 0, $wm_width, $wm_height, $this->wm_opacity);
 		}
 
+ 		// We can preserve transparency for PNG images
+		if ($this->image_type === 3)
+		{
+			imagealphablending($src_img, FALSE);
+			imagesavealpha($src_img, TRUE);
+		}
+
 		// Output the image
 		if ($this->dynamic_output === TRUE)
 		{
@@ -1785,4 +1792,4 @@
 }
 
 /* End of file Image_lib.php */
-/* Location: ./system/libraries/Image_lib.php */
\ No newline at end of file
+/* Location: ./system/libraries/Image_lib.php */