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Ok, so after all your tips (and to close this off) I find that it is indeed a faulty fan. The LH fan motor (which is the 'main' or "cooling" fan in my MY03 3rd gen) was seized (you could not turn it by hand, or providing power to it didn't make it turn either). In addition, the fan blade was put on ...

thanks for all the quick responses. i did consider the head gaskets, there is no other sign of water/oil mixing... and i guess i'm hoping for the best :( i guess it could be leaking into the cylinders...? only uses water when it gets really hot (and i end up letting off a lot of steam to get home) c...

my MY03 outback (gen3) has been using water (like 4L over 200km) and o/heats if i try to tow. i opened the bonnet and found one (LH, passenger) of the two fans wasn't working, even though the engine was real hot. looking at the fan, it was crooked and i couldn't turn it by hand. i did also find that...