--- a/mercurial/exchange.py	Sun Mar 05 22:22:32 2017 -0500
+++ b/mercurial/exchange.py	Sat Mar 18 12:27:52 2017 -0400
@@ -44,6 +44,9 @@
                          'bundle2': '02', #legacy
                         }
 
+# Compression engines allowed in version 1. THIS SHOULD NEVER CHANGE.
+_bundlespecv1compengines = set(['gzip', 'bzip2', 'none'])
+
 def parsebundlespec(repo, spec, strict=True, externalnames=False):
     """Parse a bundle string specification into parts.
 
@@ -127,8 +130,12 @@
         if spec in util.compengines.supportedbundlenames:
             compression = spec
             version = 'v1'
+            # Generaldelta repos require v2.
             if 'generaldelta' in repo.requirements:
                 version = 'v2'
+            # Modern compression engines require v2.
+            if compression not in _bundlespecv1compengines:
+                version = 'v2'
         elif spec in _bundlespeccgversions:
             if spec == 'packed1':
                 compression = 'none'
@@ -139,6 +146,12 @@
             raise error.UnsupportedBundleSpecification(
                     _('%s is not a recognized bundle specification') % spec)
 
+    # Bundle version 1 only supports a known set of compression engines.
+    if version == 'v1' and compression not in _bundlespecv1compengines:
+        raise error.UnsupportedBundleSpecification(
+            _('compression engine %s is not supported on v1 bundles') %
+            compression)
+
     # The specification for packed1 can optionally declare the data formats
     # required to apply it. If we see this metadata, compare against what the
     # repo supports and error if the bundle isn't compatible.

--- a/tests/test-bundle-type.t	Sun Mar 05 22:22:32 2017 -0500
+++ b/tests/test-bundle-type.t	Sat Mar 18 12:27:52 2017 -0400
@@ -33,6 +33,23 @@
   summary:     a
   $ cd ..
 
+Unknown compression type is rejected
+
+  $ hg init t3
+  $ cd t3
+  $ hg -q pull ../b1
+  $ hg bundle -a -t unknown out.hg
+  abort: unknown is not a recognized bundle specification
+  (see 'hg help bundle' for supported values for --type)
+  [255]
+
+  $ hg bundle -a -t unknown-v2 out.hg
+  abort: unknown compression is not supported
+  (see 'hg help bundle' for supported values for --type)
+  [255]
+
+  $ cd ..
+
 test bundle types
 
   $ testbundle() {
@@ -164,6 +181,21 @@
       c35a0f9217e65d1fdb90c936ffa7dbe679f83ddf
   zstd-v2
   
+
+Explicit request for zstd on non-generaldelta repos
+
+  $ hg --config format.usegeneraldelta=false init nogd
+  $ hg -q -R nogd pull t1
+  $ hg -R nogd bundle -a -t zstd nogd-zstd
+  1 changesets found
+
+zstd-v1 always fails
+
+  $ hg -R tzstd bundle -a -t zstd-v1 zstd-v1
+  abort: compression engine zstd is not supported on v1 bundles
+  (see 'hg help bundle' for supported values for --type)
+  [255]
+
 #else
 
 zstd is a valid engine but isn't available