A new ab initio three-body potential [E. M. Mas , J. Chem. Phys. 118, 4386 (2003), preceding paper] has been employed, together with an accurate ab initio pair potential SAPT-5s, in Monte Carlo simulations of liquid water in the canonical ensemble at ambient conditions. Analysis of radial distribution functions from these simulations illustrates the profound effect nonadditive forces have on the hydrogen-bonded structure of the liquid. Simulations using only the two-body potential give one hydrogen bond per molecule less than observed experimentally, radial distribution functions far from measured ones, and the internal energy underestimated relative to the experimental value. When three-body effects are introduced, all these quantities become significantly closer to experimental ones. In particular, we show that three-body effects result in a reorientation of water molecules leading to significantly increased number of hydrogen bonds. Our simulations indicate that three-body effects contribute 14.5% to the internal energy of water, whereas four- and higher-body effects contribute 1.4%. Since the ab initio three-body terms which are relevant for simulations are well reproduced by the nonadditive portion of classical induction interaction, our work confirms to some extent the validity of polarization models of water. (C) 2003 American Institute of Physics.