The computation of two-dimensional tidal currents using the Alternating Direction Implicit Method (ADI) can be subject to numerical attenuation, parasitic oscillations, and poor reproduction of wave propagation when large time steps are used. The new method described in the paper is designed to overcome these difficulties. It is based on a fractional step method in which momentum advection is calculated using the method of characteristics, horizontal momentum diffusion is calculated using an implicit finite difference scheme, and wave propagation is calculated using an iterative alternating direction implicit algorithm. The resulting method has been incorporated in the CYTHERE-ES1 modelling system, in which tidal flat flooding and drying as well as wind effects and Coriolis acceleration are taken into account. The basic principles of the method, as well as its application to four schematic test cases and two engineering studies, are described.